Baidu vs. Tencent: Which Chinese AI Stock Is the Better Buy Now?

Core Viewpoint - Baidu and Tencent are significant players in the AI sector in China, both investing heavily in AI technologies and leveraging their vast user bases and data resources to drive growth in this area [1][2]. Baidu Overview - Baidu is the leading search engine in China, generating substantial cash flow from its core search and advertising business, which is being redirected into AI initiatives [4]. - The company has launched its ERNIE Bot, which gained over 200 million users and handled 1.65 billion daily API calls by late 2024, indicating strong adoption [5]. - Baidu's AI Cloud segment saw a revenue increase of 17% in 2024, despite overall revenue challenges, highlighting its potential in the AI market [7]. - Baidu maintains a solid financial position with RMB 170.5 billion (approximately $24 billion) in net cash and healthy free cash flow of RMB 13.1 billion [8]. Tencent Overview - Tencent operates a diversified tech ecosystem, with WeChat as its flagship product, boasting nearly 1.4 billion monthly active users, providing a vast data resource for AI development [9][10]. - The company has rapidly developed its AI capabilities, launching the Hunyuan Turbo S model in early 2025, which offers fast and high-quality chatbot responses [11]. - Tencent's financial performance rebounded with double-digit revenue growth in Q4 2024, driven by AI-enhanced advertising and gaming recovery [13]. - Tencent's share repurchases increased to approximately HK$112 billion in 2024, alongside a proposed 32% dividend increase for 2025, reflecting strong cash flow [13]. Stock Performance & Valuation - Both Baidu and Tencent stocks have outperformed the Zacks Internet – Services industry, with Tencent gaining 15.1% year-to-date [14]. - Baidu is trading at a discount relative to its industry, with a forward 12-month price-to-sales (P/S) ratio below its five-year average, indicating better value [15][20]. - Analysts expect Baidu's revenue to rise by 1.7% to $18.8 billion, while Tencent's revenue is projected to grow by 8.7$99.85 billion, showcasing Tencent's stronger growth momentum [17]. Conclusion - Tencent is positioned as a more compelling investment opportunity due to its diverse revenue streams, robust growth trajectory, and effective AI integration across its platforms, reflected in its Zacks Rank 2 (Buy) compared to Baidu's Zacks Rank 3 (Hold) [22].