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Why You May Want to Grab This Artificial Intelligence Stock

Harsh Chauhan, The Motley Fool

Artificial intelligence (AI) is going to impact several industries in a big way. Retailers, banks, carmakers, or technology companies, are scurrying to embrace AI to make their customers' lives easier. Not surprisingly, the market for AI software is predicted to jump from just $3.2 billion a couple of years ago to $89.8 billion by 2025.

Tech giants like Baidu (NASDAQ: BIDU) have been pouring a lot of money into AI research. Let's look at how Baidu plans to take advantage of the AI opportunity and why it could be one of the best bets in this space.

Man holding a tablet that's projecting a brain representing AI.

Image Source: Getty Images.

Self-driving cars

Baidu announced its self-driving technology platform Project Apollo in April last year. The Chinese internet giant upgraded the platform in January 2018 with the launch of the open-source Apollo 2.0 self-driving platform. The upgraded platform gives Baidu's partners a more comprehensive solution for self-driving vehicles by providing access to four key pillars: cloud services, reference hardware platforms, software platforms, and reference vehicle platforms.

This new platform enables Baidu's automotive partners to start developing a wide range of self-driving vehicles including public buses and other shared transportation services. Baidu has already struck partnerships with over 80 companies that are developing self-driving solutions using Apollo, like Ford, Microsoft, Intel, and NVIDIA.

These partnerships could start bearing fruit for Baidu soon enough. In January, NVIDIA announced that it is developing a production-ready, AI-enabled, autonomous-vehicle computing platform for the Chinese market. This platform will use NVIDIA's hardware and integrate Baidu's Apollo Pilot software system and could start powering self-driving cars on Chinese roads in the next couple of years.

While the revenue potential is hard to quantify the market for advanced driver-assistance systems -- which are crucial to the operation of self-driving cars -- could grow eightfold in China from 2015 to 2020, hitting over $13.6 billion by the end of the decade.

Baidu and NVIDIA's prepackaged autonomous driving platform can help automakers deploy self-driving vehicles starting with Level 2 autonomy, going right up to the fully autonomous Level 5. Baidu can make big money if it can carve a substantial share of this market. And it is definitely serious about this opportunity as evident from its recently announced $1.5 billion fund for self-driving car development.

Smart speakers

In July last year, Baidu announced the launch of its conversational AI assistant DuerOS for third parties and businesses. This platform is nothing new for the Chinese market, where the DuerOS operating system is used in more than 100 appliances like washing machines, refrigerators, and televisions.

The company wants to expand the adoption of this platform, so it has now made DuerOS open source, providing tools and kits to help developers quickly build devices such as smart speakers that use voice and natural language processing.

Baidu recently unveiled three smart-home products powered by DuerOS: a smart speaker, a smart lamp, and a voice-enabled light projector. This follows the launch of DuerOS-powered smart speakers in November last year.

More important, Baidu's AI assistant is fast gaining traction -- the installed base of DuerOS-enabled devices shot up 127% month over month in December. This could be another lucrative opportunity for Baidu, as tech analyst Canalys estimates that sales of smart speakers in China will hit 4.4 million this year, while sales in the U.S. could clock 38.4 million.

And by 2021, the Chinese smart-speaker market is expected to overtake the U.S. in terms of sales, which should boost adoption of Baidu's voice assistant platform.

The Foolish takeaway

Baidu is making the right moves to take advantage of AI, though investors shouldn't expect any quick gains as the markets it is targeting are yet to hit critical mass. But, given the timeliness of the company's initiatives, Baidu could start seeing tangible results sooner rather than later.

With a trailing price-to-earnings ratio of 31 -- which is substantially lower than the 53.8 industry average -- investors looking to jump on the AI bandwagon should definitely take a look at Baidu, as it could provide growth at a reasonable price.

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Teresa Kersten is an employee of LinkedIn and is a member of The Motley Fool's board of directors. LinkedIn is owned by Microsoft. Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Baidu, Ford, and Nvidia. The Motley Fool recommends Intel. The Motley Fool has a disclosure policy.