Mad Money host Jim Cramer had some nice things to say about two of China’s top tech innovators in a recent episode of the Lightning Round. Notably, he said that Baidu (NASDAQ:BIDU) and Alibaba (NASDAQ:BABA) were “good.” And while shares of both Chinese AI innovators have gained significant traction over the past year, it’s worth mentioning that both names are well off their all-time highs and have since slipped significantly off their recent 52-week highs.
In light of recent developments on AI, share declines, and more, though, I’m not so sure where Cramer stands in real-time. Could he have changed his mind? It’s impossible to tell. But if you think nothing much has changed in recent sessions other than the price, it might be a good time to give the pair a closer look.
With a ton of AI news moving the needle in the Chinese internet giants, investors might be wondering if the two names might be worth picking up, if not for cheaper multiples to bet on the AI trend, perhaps to further diversify one’s portfolio outside of U.S. tech, which is starting to get somewhat frothy if it isn’t already.
Chinese AI stocks look cheap. And they might be worth sticking with on a broad AI sell-off
Geopolitical risks in investing in Chinese stocks will always be there, even as relations between President Trump and Xi look to improve further going into the new year. However, I believe that most of such risks are already priced in. And as the AI names pull back further from here after a rocky run into mid-November, there might be an opportunity to snag two of the names that might have the most room to run at the hands of new developments. Undoubtedly, Baidu and Alibaba have really upped their game when it comes to AI models.
And as the Chinese AI race plays out, one has to wonder if the two juggernauts have what it takes to make the AI race between their U.S. rivals (think some of the Mag Seven names) a little closer. It’s hard to tell, as America looks to pull ahead further. If Nvidia (NASDAQ:NVDA) CEO Jensen Huang is right and China is “nanoseconds” behind in the AI race, perhaps spreading one’s bets could prove wise if nanoseconds turn into picoseconds and the race starts to become too close to call.
Let’s check in with the two AI titans that you may have forgotten about in recent years. Some folks may still view them as uninvestable, given the added risks, but for value seekers, I do understand the case for giving the names a second look amid recent past-year strength.
Baidu
Baidu may very well be one of the best deals in AI today, with shares currently going for just 10.5 times trailing price-to-earnings (P/E). If it looks like a value trap, though, it probably is right? Despite still being up over 37% in the past year, shares are now down 20% from 52-week highs. It’s been a painful crash that’s wiped out around half of the gains enjoyed through the late summer months.
With Baidu’s Ernie 5.0 model (its latest and greatest large language model) failing to impress, shares have been quick to retreat. After such a tumble, it’s easy to conclude that maybe the U.S. is more comfortably ahead of China in AI than Huang’s comments suggest. It’s hard to tell. Either way, Baidu has also been putting its foot on the pedal regarding new AI chips.
If Baidu is on track to produce competitive chips along with its models, things could get very interesting in a year or so from now. Either way, Baidu and Ernie are worth keeping tabs on as the AI race moves into yet another year. Personally, I think the shares are cheap enough to consider nibbling at less than $120 per share. The 0.43 beta might also help lower a U.S. portfolio’s correlation to the S&P.
Alibaba
Alibaba is another AI name that’s been on the decline of late, giving back much of the gains for the year. Of course, Alibaba stock is no stranger to steep swings in both directions. And while the technicals look nasty, with shares tumbling 19% since the early-October highs, the valuation is starting to look enticing again, with shares trading at 17.7 times trailing P/E.
With all the promising AI headlines (the Qwen model is impressive) and investments in AI already starting to show signs of paying off in the form of higher returns in ad spend, Alibaba might have enough growth in the tank to power a quick rebound after the latest slip.
Still, the latest headline, citing Alibaba, is helping the Chinese military target the U.S. is nothing short of concerning. In light of such news, I’d hold off on Alibaba and would instead gravitate towards the likes of Baidu instead. Undoubtedly, such a headline could easily spark more pain in the shares, and I think it might be difficult to tell where to draw the line.
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