Baidu Retail Investors Cheer Nomura Upgrade After Mixed Results – Some Analysts Still Wary Of Core Ad Drag

• Baidu shares rose 1% in the premarket sessions, and their Stocktwits sentiment shifted higher to ‘extremely bullish.’
• Nomura upgraded BIDU to ‘Buy’ from ‘Hold,’ citing potential in its chips business and the company’s plan to enhance shareholder capital returns.
• Baidu reported mixed third-quarter results on Tuesday, which included a $2.3 billion due to write-offs of certain server assets.

Baidu, Inc.’s shares drew retail buzz on Stocktwits early Thursday and gained 1% in the premarket session, following a rating upgrade from Nomura. On Stocktwits, the retail sentiment shifted to ‘extremely bullish’ from ‘ bullish’ the previous day.

The Japanese research firm raised its rating on BIDU to ‘Buy’ from ‘Hold’ and raised its price target by $5 to $140, implying an over 21% upside to the stock's last close.

What’s Driving The Upgrade?

Nomura analysts believe that Baidu's chip-design subsidiary, Kunlunxin, offers "substantial growth potential" and note that management is considering enhancing capital returns, which the firm sees as likely to "enhance the appeal of the stock.

The upgrade comes amid a string of analyst commentary, following the Chinese search giant’s mixed quarterly results on Tuesday. Benchmark, Morgan Stanley, and Goldman Sachs adjusted their stock targets since the report, with the first two reiterating their ‘Buy’ ratings.

Third-quarter results "reveal a clear divergence in growth drivers" as core search ad revenue remains challenged, while AI initiatives are gaining strong momentum, Benchmark analysts said in their investor note.

Morgan Stanley analysts lowered the price target on the stock to $130 from $140. They said that, with core business recovery and AI services scaling taking time, they await more details on Baidu’s capital return plans.

Earnings At A Glance

On Tuesday, Baidu reported a 7% drop in quarterly revenue. Although less-than-feared, the pace of decline is the highest in the company’s history. It also surprised the market with a 6.2 billion yuan ($2.3 billion) impairment charge stemming from write-offs of certain server assets, resulting in a net loss.

The charge drew questions from famed “Big Short” investor Michael Burry, who alleged that companies, especially hyperscalers, were toying with the useful life and depreciation assessment of servers to boost profits.

Currently, 24 of the 33 analysts covering BIDU rate it ‘Buy’ or higher,’ eight rate it ‘Hold,’ and one rates it ‘Strong Sell,’ according to Koyfin. Their average price target of $147 implies an expectation of 27% gains in the stock.

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