Investors betting on an extension of Baidu Inc.’s market-beating rally may be due for a reality check as concerns about the sluggish Chinese economy and setbacks from a key segment of its business deepen.
Citigroup Inc., China International Capital Corp. and Daiwa Capital Markets Hong Kong Ltd. are among brokers that have lowered their earnings expectations in recent weeks ahead of the search engine provider’s second-quarter results due Tuesday, with analysts expecting a slowdown in adjusted net income growth.
“Expectations have been lowered for the second quarter and beyond for Baidu,” said Kai Wang, an analyst at Morningstar Inc., who sees soft demand for the advertising industry. The company faces macro headwinds and is likely to see weaker operating margins due to the build-out of the AI products, he added.
There are still reasons to remain optimistic. Baidu continues to be the best-positioned Chinese internet firm given its early pivot to AI opportunities even if they aren’t profitable just yet, according to Goldman Sachs Group Inc. UK government officials have held discussions with tech giants Nvidia Corp., Advanced Micro Devices Inc. and Intel Corp. about procuring equipment for national artificial intelligence research, according to the Telegraph.
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