For Immediate Release
Chicago, IL – December 24, 2020 – Zacks Equity Research highlights Baidu BIDU as the Bull of the Day and Virgin Galactic SPCE as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Micron Technology MU, Microsoft MSFT and Cloudera CLDR.
Here is a synopsis of all five stocks:
Bull of the Day:
I wrote about Baidu as the Bull of the Day in November after the company’s Q3 report inspired analysts to raise estimates and upgrade their outlooks as several business transitions were gaining traction.
As of Nov 27, the strong earnings beat and raised guidance caused the Zacks EPS Consensus for this year to jump 10% to $8.25. Since then, the consensus has moved up to $9.01.
But following the Nov 16 report, the stock fell from new 52-week highs above $150 and languished for two weeks, revisiting the $132-133 support zone where I had begun an initial position in July.
Amidst that uncertainty and languishing share price, here’s what I concluded in my Nov 27 report…
Bottom line on Baidu: The transformation into an AI powerhouse is real and streaming/social deals won’t determine the fortunes of BIDU. I would remain a buyer of pullbacks to $130.
Then on December 9, the stock went on a 5-day tear, breaking above $150 and surging to $186 in big volume.
From the Google of China,to the Tesla of China?
The big catalyst on Dec 15 that moved shares 14% from $163 to $186 was a story in Reuters about Baidu in talks with several electric vehicle (EV) manufacturers in China to build their own next-gen EVs.
Since Baidu has deep experience with both artificial intelligence (AI) systems and ADAS (advanced driver assistance systems) that supply Volkswagen, Toyota and Ford, the speculation about the company making a deeper push into the auto industry really ignited some investor interest.
Baidu would offer EVs expanded capabilities based on their proprietary AI systems. The Reuter’s story on the evening of Dec 14 was based on 3 sources and the company did not confirm any of the speculation, but I found this fact highly interesting…
“Baidu operates autonomous taxi service Go Robotaxi with safety drivers on board in Beijing, Changsha and Cangzhou, and plans to expand to 30 cities in three years. It gained approval last week to test five cars in Beijing without safety drivers.”
“Winner TakeMost”
I borrow this phrase from Cathie Wood of ARK Invest who has made her followers very happy with heavy investment in Tesla shares. If you saw my February video and article Tesla to $7,000: Buy the Launch Abort at $500, you know that she moved her price target from $5,000 to $7,000 (pre-split) in January.
Her thesis was always a long-term view that Tesla would own the “autonomous EV + ride-hailing” space, with their capability to generate 80% gross margins. Her vision for Tesla as an investment is unfolding much faster than even she anticipated, as she expects the real “disruptive innovation” fruits to take another decade to blossom.
Now even though Baidu isn’t going to take on Tesla in the luxury and mid-tier EV market, their total addressable market opportunity in China could be even greater with autonomous driving for the masses.
My colleague Dave Borun has spent years studying the economics and technology of EVs, especially the battery and energy storage innovations. He has published several special reports for Zacks Ultimate members on the topic, with the most recent in October totaling 24 pages packed with info and insight — and it didn’t even include the 20+ slide research presentation he does for institutional investors to explain the battery technology.
So when Dave talks about EVs, I’m listening. Here’s what he told me when I asked him about all the various players in China…
The opportunity is “hundreds of millions of people who have never owned a car and have no preconceived notion about what a car should look like – or even if they should let it drive for them, share ownership, lend it out when they’re not using it, etc. It’s like a totally blank slate and I’m positive there will be some big winners as the market matures.”
That was all I needed to hear to remain invested in Baidu. Because despite issues of questionable financial reporting and fraud among many Chinese companies, the one thing we can’t deny is that somebody is going to win in the world’s largest middle class where the government is fully behind building infrastructure to keep the massive population thriving.
I don’t invest in very many Chinese companies because of the unknowns and risks. But when I do, I focus on “winner take most” companies like Alibaba and Baidu.
Autonomous EVs >Livestreaming
Since we now also have news about Apple working hard behind the walls of their R&D spaceship on a self-driving car for the mass market, it’s a good time to review the hard work that Baidu has already done to stake their claim in the Chinese market.
Here’s what I wrote last month about my Baidu views and the one Wall Street analyst who shared them…
Immediately following the company presentation and conference call (on Nov 16), Mizuho analyst James Lee raised the firm’s price target on Baidu to $185 from $170, noting that the company’s core revenue reached positive growth one quarter earlier than expected and was guided up 5% year-over-year for Q4.
Baidu also launched an expansion into “livestreaming,” the new platform rage among Chinese youth for shopping and following influencers, by acquiring JOYY Live’s Chinese business for $3.6 billion. Lee likes this move because it diversifies the revenue stream strongly into ecommerce and subscriptions and maintained Baidu as his top pick in China.
Lee also anticipates the AD (Autonomous Driving) segment’s asset value could be unlocked through a strategic investment with leading OEMs, which could provide a 20% upside to the stock price.
I have always believed that AI and AD represented the primary growth drivers for Baidu, not internet search and advertising, as many Alphabet investors must also believe about their beloved.
But for Baidu, I think these growth levers are stronger here because of the strong Chinese government support for advanced technologies. In early 2018, I described the development of the first urban “AI park” outside of Beijing where Baidu would be the primary R&D company to build and test AD technologies.
Since then, an “AI park” sprung up around Shanghai in 2019. And while NVIDIA gets all the attention as the premier builder of AI hardware and software stacks, Baidu’s pedigree in AI is beginning to bear fruit.
More coming up on Baidu’s evolution into an AI powerhouse in China, right after we take care of some recent negative news.
Muddy Waters shorts JOYY (YY),calls company “almost entirely fraudulent”
Unfortunately, 2 days after Baidu’s strong report, I had to share this update with my TAZR members…
Carson Block’s Muddy Waters Research said via Twitter, “MW is short $YY bc we conclude it is a near-total fraud. We conclude its businesses, users, and cash are a fraction of what it reports. We estimate that ~90% of YY Live revenue is fraudulent, and ~80% of Bigo rev is fraudulent…When $BIDU diligences $YY Live, the massive scale of fraud will be apparent. Is BIDU so desperate to show growth that it will pay ~7% of its market cap for an almost entirely fraudulent business? Is China Inc that rotten?. Bigo’s rot stems from inception & the lie about who founded it. This lie enabled Chmnn Li to defraud at least $156.1 million of real money from $YY shareholders & YY to fraudulently report substantial remeasurement gains.”
YY shares dropped over 25% late on Nov 18, from new highs above $105 all the way down to the low $70s. But they have since recovered to $90 as more is learned about the two businesses. And BIDU, who had just made new 18-month highs above $150, fell back to $140.
The short report claims that YY meaningfully misled investors regarding its financials by misrepresenting how revenues flow between itself and talent agencies. Essentially, YY controls talent agencies that manage influencers on the livestreaming platform and paid more than 50% of the total volume of virtual gifts. To support that claim, the Muddy Waters report points to PRC’s Credit Bureau, indicating that the five largest MCNs (talent agencies) on YY contributed only 15% of YY Live’s reported revenues.
Here was the reaction from Mizuho’s Lee…
We do not cover YY, but based on our understanding of the Livestreaming industry, a platform typically has an internal talent agency that acquires, trains and manages influencers, so the claim by the report is not unusual, but materiality of revenues is the issue that YY needs to address, in our view.
In light of this report, we have confidence in Baidu management to conduct additional due diligence on issues raised by the report. At the same time, we believe that the acquisition could be delayed if YY hires an independent advisor to conduct its own reviews, very similar to what IQ did when facing an allegation of accounting improprieties a few months ago. Furthermore, a potential SEC inquiry could also slow the process.
If Baidu cannot move forward with the acquisition due to MAC (material adverse change), we believe that the company could either build a livestreaming platform internally, or seek other acquisition candidates.
Lee maintained Baidu as their top China Internet pick with a $185 price target, based on a SOTP (sum of the parts) valuation, noting that the stock trades at only 4X FY22 Baidu core EBITDA, against their estimated CAGR of 16%. He said the buy thesis has not changed as all previously outlined catalysts are still in play.
Baidu’s Industrial AI Frontier in China
I’ve always admired Baidu for its committed role in AI, especially as I learned more about the vision and ethics of former chief scientist Andrew Yan-Tak Ng. As a technologist and investor, Ng co-founded and led Google Brain and was a former Vice President and Chief Scientist at Baidu, building the company’s Artificial Intelligence Group into a team of several thousand people.
Ng is now an adjunct professor at Stanford University (formerly associate professor and Director of its AI Lab). Also a pioneer in online education, Ng co-founded Coursera and deeplearning.ai where he has successfully spearheaded many efforts to “democratize deep learning,” teaching over 2.5 million students through his online courses.
In July when I bought shares, I highlighted news for TAZR members on Baidu’s “new infrastructure” plan for the smart economy…
Baidu Unveils Plan to Increase Investments in New Infrastructure to Power the Rise of Industrial AI
–Plans to Deploy 5 Million AI Cloud Servers by 2030 and Train 5 Million AI Professionals–
Baidu announced that it will increase its investments in cloud computing, AI education, AI platforms, chipsets, and data centers in the coming ten years as part of its efforts to construct “new infrastructure” for the smart economy of the future.
“New infrastructure — which encompasses emerging technologies like AI, cloud computing, 5G, IoT, and blockchain — will be the driver for China’s economic development in the coming decades,” said Baidu Chief Technology Officer Haifeng Wang.
Under the plan, Baidu aims to have 5 million intelligent cloud servers by 2030 and train 5 million AI professionals within 5 years, which will help facilitate the widespread application of AI in transportation, city management, finance, energy, health care, and manufacturing to eventually achieve industrial intelligence.
Deploying 5 million intelligent cloud servers by 2030 is an ambitious target that would create a combined computing capability equal to seven times the total calculable computing power of the world’s existing top 500 supercomputers.
Viewing human capital as a core component of the new infrastructure, the Baidu goal to train 5 million AI professionals in the next five years keeps humans at the center of this massive AI R&D. Baidu has been working with more than 200 leading universities in China to develop courses related to AI and deep learning and has already trained more than 1 million AI experts.
It sounds like China might be better paced than the US to migrate college students into jobs of the future.
Baidu has more than 7,000 published AI patent applications in China, the highest in the country. The AI open platform Baidu Brain has made available more than 250 core AI capabilities to over 1.9 million developers, while PaddlePaddle, the largest open-source deep learning platform in China, services 84,000 enterprises.
Baidu’s Kunlun and Honghu AI chips are among the highest performing AI chips and are built for a wide range of scenarios. Baidu Cloud is China’s leader in public cloud and AI cloud services with more than ten data centers across the country.
This new infrastructure is already allowing Baidu to lead the intelligent transformation of different industries. Baidu’s smart finance products serve nearly 200 financial institutions, while Baidu’s intelligent healthcare products are deployed at more than 300 hospitals and 1500 grassroots medical institutions.
Baidu Brain for Cities is already in place in Chongqing, Suzhou, and other cities, supporting more intelligent city management. Baidu’s new investments will enhance its ability to roll out AI applications in these scenarios, as well as in manufacturing, energy, and transportation.
Bottom line on Baidu: The transformation into an AI powerhouse is real and streaming/social deals won’t determine the fortunes of BIDU. I would remain a buyer of pullbacks to the $160-170 area.
Disclosure: I own shares of BIDU and NVDA for the Zacks TAZR Trader portfolio.
Bear of the Day:
Virgin Galacticfell into the lower atmosphere of the Zacks Ranks once again — not because of the recent engine failure indicent, but because Wall Street analysts keep lowering their revenue and profit estimates.
Like some of my favorite promising Biotech companies with emerging R&D for life-saving therapeutics, I hate to write this article about something as grand as a space travel company.
In fact, I grew up watching the original designers of the technology that won the X-Prize — the Rutan brothers — at the EAA (experimental aircraft association) Fly-In at Oshkosh in many summers of my youth in the 1970s.
Their revolutionary forward canard control surfaces and rearward “pusher” propeller aerodynamics were bold and inspiring. In fact, I just saw a Vari-EZ model fly over my Wisconsin farmland two days ago and I stood in awe as if anyone had seen it for the first time.
How Do You Value The Amazing Future of Space?
But investors who are as enthusiastic about the technology platform as I am — see my January 2020 article and video Virgin Galactic Stock Takes Off Before SpaceX and Blue Origin — need to understand how investing in SPCE will be a bumpy ride.
First off, even though the business genius of Richard Branson has amassed sizable advance ticket sales for the orbital rides he’s offering around our great blue sphere, the multiple-year delays in actual passenger travel have dampened further ticket purchases.
And this dynamic makes the $5+ billion stock trade at over 100X next year’s projected sales of just $50 million.
That’s rich by any measure — even for moon-shots.
Secondly, even if the dreams of space rides do generate rising revenues that bring the valuation back down to earth, it will be along-term and luxury-tied prospect of distant future fortune.
Think ultra-private jet rides for the ultra-wealthy.
In other words, it’s not a mass market opportunity any time soon. Most who can afford the ride may rather buy a Ferrari.
Still, it’s an amazing and very concentrated time period of space R&D we are living in.
It may not be quite as exciting as the genomic revolution.
But — and hear me out — the Rutan Clan did turn the $10 million Ansari X-Prize in 2004 (created by Peter Diamandis and funded by private donations from an American-Iranian engineer and astronaut, Anousheh Ansari) into a vision of realistic space travel that may gain astronomical traction in this century.
It’s a dream I have lived for.
I just want investors who feel the same way to slow down on buying the stock as the best way to experience the dream.
Let the stock come down — and the estimates start heading back up. The Zacks Rank will let you know.
Additional content:
3 A.I. Stocks to Snap Up for Explosive Returns in 2021
AI is now deeply integrated into our lives, from influencing our choices while shopping online to assisting us to book meetings and frame schedules to finding best deals. AI is ubiquitous, from social media, digital advertising and gaming to even healthcare and diagnosis.
Growing clout of conversational AI in the form of digital assistants, including Microsoft’s Cortana and chatbots, deserves a special mention in this regard.
As the name suggests, Artificial Intelligence or AI is based on data-driven simulation of human intelligence processes by machines, especially computer systems.
Enterprises are harnessing the power of AI as it collaborates with the workforce and facilitates superior work with robust automation and accelerated computing of complex workloads. The enhanced productivity of employees aids companies to realize business goals faster than projected.
Proliferation of AI is set to grow even further as focus toward boosting user experience increases and companies seek to offer customized solutions. Moreover, growing popularity of autonomous cars and smart devices set the stage for solid growth in the AI space.
AI is Here to Stay in 2021 and Beyond
The coronavirus crisis triggered a strong digital transformation environment, and major breakthroughs in cloud computing, predictive analysis, deep learning, machine learning, natural language processing (NLP) and Internet-of-Things (IoT), have been paving the way for a massive AI boom in 2021.
These developments in AI are leading to robust achievements in futuristic technology, including the training of advanced driver assisted systems (ADAS) in self-driving vehicles, increased AR/VR utilization across enterprise, healthcare, and entertainment, edge computing, blockchain, and even advanced warfare devices.
The companies are leveraging AI to design robust applications, which are revolutionizing broader working trends of various domains, including supply-chain optimization, customer care services, smart home automation, logistics, transportation, security, utility, financial services and banking, robotics, and agriculture.
In fact, per IDC, spending on AI systems is expected to hit $110 billion by 2024 from $50.1 billion estimated in 2020, at a CAGR of 20.1% between 2019 and 2024.
3 Top AI Stocks to Build a Fortune in 2021
Increasing optimism in the AI space is evident from a strong performance of Global X Artificial Intelligence & Technology ETF (AIQ), which has surged 51.8% in the year to date compared with the SPDR S&P 500 ETF’s rally of 14.1%.
Investors looking to tap the budding prospects in this lucrative AI market can count on Micron Technology, Microsoft and Cloudera. Notably, each of these stocks has outperformed the S&P 500 index on a year-to-date basis.
Micron Technologymanufactures and markets high-performance memory and storage technologies including Dynamic Random Access Memory (DRAM), NAND flash memory, NOR Flash, 3D XPoint memory and other technologies. Its solutions are used in AI-driven edge computing, consumer, networking and mobile products.
Markedly, as self-driving cars take off, the sensors and cameras utilized in the ADAS systems will leverage more AI computing. This, in turn, will necessitate the need for advanced chips and robust drivers, which Micron strives to fulfill.
In 2019, the company acquired software and hardware startup, FWDNXT in a bid to deliver high-performance AI development platform enabled for deep learning applications, required in data analytics, particularly in IoT and edge computing.
Moreover, increasing use of data center chips and smartphones (for instance AI work on editing images) in running complex AI workloads boost the prospects of Micron’s expertise in memory domain.
Growth in AI is poised to boost demand for memory chips over the long haul, which is likely to act as a tailwind for Micron, currently sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Notably, the Zacks Consensus Estimate for earnings for fiscal 2021 has improved 36.6% to $3.66 over the past 30 days, which highlights bullish sentiments for the stock.
Microsoftis well positioned to gain from increasing penetration of AI expertise across its product portfolio, including Microsoft 365, Teams, Dynamics 365, HoloLens and cloud computing platform, Azure.
The tech giant is focusing on democratization of AI by development of conversational AI, ML, data sciences, robotics, and IoT. Moreover, Microsoft’s Azure contains AI-driven tools for medicine, language, robotics, medical imaging and more.
In 2019, the company also invested $1 billion in OpenAI that produces artificial general intelligence, a technology that works like human intelligence. The company’s GitHub acquisition, which enriched the company’s AI capabilities, is a key catalyst in this regard. Moreover, recent buyouts of Bonsai, Lobe, CyberX and Softomotive remain noteworthy.
The cloud-centric company currently has a Zacks Rank #2 (Buy). Notably, the Zacks Consensus Estimate for earnings for fiscal 2021 has improved 5.8% to $6.73 over the past 60 days.
Clouderais poised for a good run in 2021, led by its efforts to deliver robust enterprise data cloud, which enables “actionable insights from the Edge to AI.” The company offers a cloud-based software platform for data, ML, and analytics. The company’s AI offerings aid companies to store, process and manage data on servers making the procedure secure and efficient.
The company is focused on helping businesses in achieving faster analytic results by harnessing the potential of Big Data to create informed decisions, which is further substantiated by acquisitions of Fast Forward Labs and Arcadia Data.
As AI booms, the company is well poised to build a superior position to capitalize on the emergence of AI. Moreover, accelerated deployment of 5G is a tailwind for this Zacks Rank #2 stock.
Notably, the Zacks Consensus Estimate for earnings for fiscal 2021 has improved 21.2% to 40 cents over the past 30 days.
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