China’s artificial intelligence stocks are soaring.Here are the names to watch | Private Equity Weekly
Chinese artificial intelligence stocks are soaring even as the broader market recovery remains modest. OpenAI’s Sora text-to-video product was released at the end of the Chinese New Year holiday. Locals rushed to discuss and share the technology’s possibilities online, and when markets reopened on February 19, AI-related stocks began to rise. Wind Information, which is equivalent to the domestic Bloomberg terminal, even launched the Sora concept stock index for mainland China’s A shares, which rose by more than 20% in a week. Other Wind AI-related indexes have seen similar gains over the past few days. Next week, tech giant Baidu — which Morgan Stanley calls “the best artificial intelligence company on the Chinese Internet” — will report earnings. A team of investment analysts led by Gary Yu set a $140 price target and an overweight rating on Baidu’s U.S.-listed shares. That’s more than 25% higher than Baidu’s closing price on Thursday. Yu noted how Baidu integrated its ChatGPT-like Ernie chatbot with Samsung’s new Galaxy S24 smartphone and entered into a strategic partnership with smartphone brand Honor, which was spun off from Huawei. “We believe the current artificial intelligence cloud integration between Galaxy AI and Ernie is just the first step,” Yu said. “While the current scale of monetization may be limited, we anticipate that in the long term, there may be further expansion to other phone models, or possibly the development of edge AI models, which are currently untapped markets (i.e. data and algorithms) (processing) directly from endpoint devices without Internet connections).” Baidu is scheduled to report results for the final three months of 2023 before U.S. stocks open on Wednesday. The company operates a range of technology businesses, including search engines, cloud services and robotaxis. China’s slowing macro environment poses headwinds for Baidu’s core advertising business, while regulators keep a close eye on artificial intelligence. But that hasn’t stopped companies from experimenting with AI tools. A survey by Benchmark analysts led by Fawne Jiang found that advertisers are increasingly adopting artificial intelligence-driven generative advertising tools, in part because of their cost-effectiveness. Generative AI advertising could contribute more than 100 million yuan ($14 million) to Baidu’s fourth-quarter results, Jiang said in a Feb. 21 report. She pointed out that Baidu had previously stated that artificial intelligence advertising revenue was expected to exceed 1 billion yuan this year. “We are particularly interested in the number of new enterprise customers and the average spending trends of existing customers adopting new services,” Jiang said. Benchmark sets a price target of $210 per share for Baidu and gives it a buy rating. Alex Yao, a China Internet analyst at JPMorgan Chase, gave a higher target price of $215. He predicts that AI-generated advertising will bring Baidu 2 billion yuan in revenue this year, and that the total contribution of AI to the company will exceed 9 billion yuan – a figure that has not yet been fully calculated, according to a report earlier this month. input cost. Including the promotion of artificial intelligence, Yao expects Baidu’s core advertising revenue to grow 7% this year as the economy recovers. But he lowered his annual growth forecast for the fourth quarter of 2023 by 2 percentage points to 6%. According to Cade Metz’s 2021 book Genius Makers: The Mavericks Who Brought Artificial Intelligence to Google, Facebook, and the World, Baidu is the “godfather of artificial intelligence” Jeffrey An early bidder for Geoffrey Hinton and his technology, more than a decade ago. Hinton went to Google, while Metz described how Baidu gathered its own kind of talent and established similar research in artificial intelligence. When Baidu launched its Ernie bot in March 2023, the company also showed off text-to-video capabilities, although it’s unclear how widespread they will be or how comparable they will be to Sora. Relatively small stocks with a market capitalization such as Shenzhen-listed Zhongke Financial also joined Sora in the news. The company claims that it is a Microsoft data and artificial intelligence solutions partner, and through Azure, it can get priority access to Sora’s API when it is released. Microsoft did not immediately respond to a request for comment. Its shares rose more than 16% in a week despite a letter of concern from the Shenzhen Stock Exchange over whether the company misled investors. Despite interest in artificial intelligence stocks, Chinese markets have grappled with concerns this year about whether Beijing is doing enough to support economic growth. China replaced the chairman of its securities regulator ahead of the Lunar New Year holiday as mainland stock markets plunged. The regulator last week pushed for a further crackdown on alleged market manipulation. The Shanghai Composite Index rose more than 4% last week, recouping its 2024 losses, even as the S&P 500 has gained more than 6% so far this year. EPFR data shows that as of mid-February, weekly capital inflows into the Chinese stock market have been higher than the recent average. Net inflows into Chinese equity funds so far this year are about $45.7 billion, more than half of the $77.56 billion in net inflows for all of 2023, EPFR said. However, U.S. regulation creates risks and opportunities for China-related AI. Nvidia’s latest financial report shows that China’s revenue share of its data center business has dropped to single digits, compared with more than 20% just a few months ago. Baidu’s shares fell last month after reports emerged that it was linked to the Chinese military testing publicly available artificial intelligence systems – and the company said it had no business cooperation. Bernstein analysts predict that local artificial intelligence chip manufacturers will be able to meet almost all domestic high-end semiconductor needs in the next two years. “We believe Cambrian is the best alternative to Huawei in China,” analysts said in a report in late January. They set a target price of 160 yuan for Shanghai-listed Cambrian shares, up from Friday’s price target of 160 yuan. The level increased by 12%. Huawei is not publicly traded. Bernstein analysts give Baidu an outperform rating and a price target of $140. They also like Kingsoft Office, which has integrated generative artificial intelligence into its consumer-facing software. “Kingsoft Office stands out as its product is ready for large-scale launch, but its profitability still needs to be verified,” Bernstein analysts said. They set a price target of 380 yuan for Shanghai-listed Kingsoft Software, up from last week Five rose more than 50%.
