THE TRUTH ABOUT: Will ai spending boost baidu s earnings prospects - The Untold Story

After rallying to a 4-1/2 month high late last month, Baidu Inc depositary receipts (ADRs) (BIDU) dropped to a 2-1/2 month low today as China’s struggling economic outlook weighs on the stock.  Citigroup, China International Capital, and Daiwa Capital Markets, are among analysts that have cut their earnings estimates for Baidu.  Tuesday’s second-quarter earnings results from Baidu are expected to show a slowdown in adjusted net income growth as the company competes with Alibaba Group Holding (BABA), JD.com (JD), and Tencent Holdings Ltd (TCEHY) for dominance in China’s artificial intelligence (AI) market.

Baidu is seen as the early leader in Chinese AI after developing the country’s first ChatGPT-like service called Ernie BOT.  Baidu has gained +13% so far this year, even as the Hang Seng Tech Index is down more than -3%.  However, disappointments related to its Ernie BOT service and lackluster consumer spending in China have recently weighed on Baidu’s share price.  Morningstar said, “Expectations have been lowered for the second quarter and beyond for Baidu” as the company faces macro headwinds and is likely to see weaker operating margins due to the build-out of its AI products.