It's time to buy Baidu , thanks to artificial intelligence, according to Morgan Stanley. Analyst Gary Yu upgraded shares of the Chinese internet stock to overweight from equal weight and raised his price target by $30 to $190. His new target implies a 30.9% upside from where shares finished Friday. Baidu should be poised to win from a likely shift of offline spending in 2022 to online by 2030, Yu said. That's because of its full-stack AI capabilities, commercial use cases, willingness to continue research and its development investments in the AI space. An early advantage and relatively lower regulatory hurdles should also help the company lead the pack, he said. "We believe China's AI evolution is at an inflection point, and BIDU is the best play to capture the US$7.4tn AI internet opportunity," Yu said in a note to clients Monday titled "The Best AI Play in China." AI could help create a 12% upside to 2025 core revenue estimates, he said. Baidu is the "pure" AI player among internet peers, though Yu did call the stock his second top pick behind Alibaba . Yu said Baidu has proven its place in the AI world by extending technology to intelligent driving, already running the largest robotaxi fleet in the world with partnerships with manufacturers in the autonomous driving space. The company also owns the most extensive set of generic proprietary search data as the largest search engine in China, which can help it improve its AI models over time. Baidu was not only an early investor in AI going back to 2010, it also was the first to launch a product similar to ChatGPT in China. That's given the company a head start on competition. More than 200,000 companies have signed up for the company's cloud platform so far, Yu noted, and AI could help drive demand going forward. Yu said potential regulatory approval in the second half of the year, which could lead to "instant" and "mass" adoption of AI-generated content that could result in monetization opportunities, could be a near-term catalyst. After investors focused on hardware and semiconductor stocks and then A-shares in the space in the first two stages of the AI craze, Yu said, attention may move next to companies with applications and infrastructure for the technology. That could lead to the rerating of Chinese internet companies, he said. Baidu shares are up nearly 27% year to date. BIDU YTD mountain BIDU in 2023 — CNBC's Michael Bloom contributed to this report.
