My Top 3 Stocks For China's AI Boom

seekingalpha03-29

China's economy remains robust with a GDP growth of about 5% and the Chinese stock market likely bottomed in 2022.The risks of a Chinese-Taiwan invasion are exaggerated, as it is unlikely due to ...

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href=https://seekingalpha.com/article/4681016-my-top-3-stocks-for-chinas-ai-boom><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>China's economy remains robust with a GDP growth of about 5% and the Chinese stock market likely bottomed in 2022.The risks of a Chinese-Taiwan invasion are exaggerated, as it is unlikely due to ...</p>\n\n<a href=\"https://seekingalpha.com/article/4681016-my-top-3-stocks-for-chinas-ai-boom\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"BK4552","symbol_name":"Archegos爆仓风波概念","start_time":0,"source_url":"https://seekingalpha.com/article/4681016-my-top-3-stocks-for-chinas-ai-boom","article_id":"2423107321","we_media_id":null,"thumbnails":[],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2423107321","pubTimestamp":1711644170,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"China's economy 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AI optimization and increased revenues.   stockcam/iStock Unreleased via Getty Images Despite the geopolitical rhetoric, there is a lot to like about China. With a GDP of around $18 trillion, China is the second most significant economy globally, second only to the U.S. Also, the Chinese stock market has been depressed since early 2021 and likely bottomed in 2022. While there are some challenges, China's economy remains robust, and its GDP growth should persist at about 5%. China's dispute with Taiwan could be transitory, the risks appear exaggerated, and military intervention is highly unlikely. Meanwhile, many high-quality, market-leading Chinese tech companies have lost hundreds of billions in market cap value. Several of the mighty Chinese tech titans are among the best companies in the world, leading in e-commerce, AI, cloud, search, cybersecurity, and other critical segments. Furthermore, these top global companies are dirt cheap due to years of negative news flow and underappreciation.  China's economy should remain robust and could strengthen going forward. The Taiwan noise and other negative news flow should be transitory. While many regulatory issues concerning Chinese ADRs have been resolved, high-quality tech stocks have only started recovering, and many still trade at deeply depressed levels around their lows. The market could be at an inflection point here, and top Chinese stocks may move much higher in the years ahead.  We Want To Buy At The Bottom - Not At The Top  KWEB (stockcharts.com )A wise investor once said we should buy stocks around their bottom, not the top. KraneShares CSI China (KWEB) is a popular China Internet ETF. Its portfolio includes top Chinese companies, such as Tencent (OTCPK:TCEHY), Alibaba (BABA), PDD Holdings (PDD), JD.com (JD), and others.  During the China frenzy of late 2020 and early 2021, KWEB, like many stocks and ETFs, went vertical, reaching an ATH of over $95. Of course, after that, we had the broad global bear market in tech stocks and stock markets in general. However, Chinese stocks began experiencing difficulties before their U.S. counterparts peaked in late 2021, as we witnessed transitory regulatory and other issues from both the U.S. and China sides piling up. Issues with the Chinese government regulating China's tech stocks and other temporary events contributed to increased pessimism and worsening sentiment regarding Chinese equities during this time frame. Nonetheless, most of the clouds have passed, and China is allowing the U.S. to audit its firms. However, China's tech stocks remain depressed despite their enormous growth potential and solid profitability prospects. Moreover, many leading global Chinese companies are exceptionally cheap right now.  The Tide Is Likely Turning It is likely only a matter of time before the market recognizes the actual growth and value potential of high-quality Chinese companies. This dynamic should lead to significant multiple expansion and considerably higher stock prices in the coming years.  From peak to trough, the KWEB index dropped by a staggering 82%. Despite the slight rebound after the global stock bear market ended in October 2022, KWEB is still down by about 73% from its ATH.  Here's how several top individual stocks have fared (peak to trough):  Alibaba: down 82% PDD Holdings: down 89% Tencent: down 75% Baidu (BIDU): down 79% JD.com: down 80%  We've seen some upside in several top Chinese companies, but many stocks remain highly depressed, trading around their lows. Tensions with Taiwan and the exaggerated risk of an armed conflict may be weighing on share prices, which could be another transitory event.  Taiwan Is Not Ukraine  Taiwan is not Ukraine, and China's invasion of the island is highly unlikely. While China wants to control Taiwan, invading it by force does not seem like a viable option for several distinct reasons. Taiwan is an island country, and China would need to transport hundreds of thousands of shoulders relatively quickly while conducting highly complex coordinated land, sea, air, and cyberspace operations. China has not participated in a significant war in over 70 years. Moreover, China's international image would be significantly tarnished, the country would be isolated, the economy would likely turn to ruins, and there are many other dire consequences such an invasion could have. The costs of such a drastic maneuver would likely greatly outweigh its benefits, and the CCP could face unrest at home. The last thing an authoritarian regime wants is an unhappy population, especially one that's close to 1.5 billion. Thus, the risks of a Chinese-Taiwan invasion are likely greatly exaggerated and overblown.  Not Enough Emphasis On China's AI Potential  There is a great deal of \"AI Hype\" surrounding U.S. tech companies, but what about the potential of their Chinese counterparts? China has several of the most advanced and dominant tech companies globally, which have considerable AI programs and should benefit significantly from AI's effects.  In addition to numerous \"AI Unicorns,\" top tech companies like Baidu and others have significant AI potential, and their top and bottom lines could increase considerably as we advance. Baidu is reportedly set to become Apple's generative AI model provider in China.  Tencent is another AI leader in China, providing AI solutions in content, social, games, and other applications. Alibaba is advancing in cloud AI, data intelligence, and other growing areas. PDD Holdings has also ramped up its investments in AI, expanding its LLM program and other AI-related areas. Cloud is another expanding segment with increasing AI potential for top cloud providers like Alibaba, Tencent, and other high-quality companies in China.  My Top 3 Chinese Stocks To Buy Now  1. Baidu  Baidu is a unique company that is China's \"search king.\" Moreover, Baidu owns a 53% stake and 90% voting rights in iQIYI (IQ), a massively undervalued enterprise that resembles a cross between China's Netflix and YouTube. In addition, Baidu has one of the top cloud businesses in China (roughly 9% market share) and massive potential in AI. Baidu's ChatGPT-like bot called 'Ernie' functions at the cutting edge of AI technology and illustrates Baidu's enormous long-term potential in AI, as it could become one of the greatest beneficiaries of the coming China AI boom in future years. Baidu is also a global leader in robotics and self-driving, which should provide the company with enormous long-term growth potential, especially considering the combination of Baidu's AI factor.  If I told you that Baidu's market cap is only $36 billion, and consensus revenue estimates are for about $20 billion this year, would you believe me? What's more incredible is that Baidu has about $27 billion in cash and equivalents, relative to a much smaller debt burden, placing its enterprise value at only $20 billion, or roughly one times sales.  The market is way behind the curve in Baidu, and this stock has the potential to go much higher as we advance. Moreover, Baidu could continue moving higher for a prolonged timeframe, possibly making it a top pick for the next decade or longer.  Earnings Likely To Go Much Higher  EPS estimates (seekingalpha.com)Baidu's EPS estimates appear overly pessimistic due to the horrid sentiment surrounding Chinese shares. The market may also be underestimating the earning power potential of Baidu's core search business and its future potential in AI, self-driving cars, robotics, and other segments. EPS vs. estimates (seekingalpha.com)While the consensus EPS estimate is for about $12 next year, Baidu could report $13-$15 instead. Baidu consistently surpasses analysts' figures and has beaten EPS estimates 22 quarters in a row. TTM estimates were for about $9 in EPS, and Baidu reported around $11.30 instead, a beat rate of 25%. Applying a similar 20-25% beat rate to 2024 earnings suggests Baidu can achieve about $13 in EPS this year and likely $14-$15 in 2025. Using $14 in 2025 EPS puts Baidu's forward P/E ratio at around seven now. Baidu's valuation is disturbingly cheap, and this remarkable one-of-a-kind type company likely will not remain exceptionally cheap for long.  Technically, Baidu Is A Buy  BIDU (stockcharts.com)Due to all of the China-related pessimism and poor sentiment, Baidu's stock has come down a lot, now presenting one of the most considerable buying opportunities I've seen in a long time. $100 is a solid support level, and Baidu may have put in a double bottom around the $98-$100 support range. The RSI, CCI, and other technical gauges are improving, suggesting that Baidu's stock could move much higher in the future.  My one-year price target range for Baidu is $150-$200 2. Tencent Tencent may be China's most comprehensive and complete internet conglomerate. Its core business resembles Facebook and connects over one billion people. Tencent is also very active in gaming, digital content, advertising, cloud computing, and fintech. Of course, Tencent places substantial emphasis on AI and could become one of the greatest beneficiaries of the AI revolution in China. Tencent trades at only 12 times 2025 EPS estimates, with a considerably long growth runway ahead. Moreover, Tencent's future sales growth and profitability potential could be underestimated here, as improving growth in China and AI advancements could improve Tencent's bottom line, leading to multiple expansions and a much higher stock price.  Tencent - Likely Headig Much Higher  TCEHY (stockcharts.com )Tencent may have bottomed around $33-$34 earlier this year. The RSI, CCI, and other technical indicators imply that momentum is improving, and a long-term uptrend may have begun. The 50-day MA is moving upward and could climb across the 200-day MA soon, creating a highly positive technical dynamic for Tencent's stock.  My one-year price target range for Tencent is $48-$65  3. PDD Holdings  The third and final name on our list is PDD Holdings. PDD is a remarkable e-commerce giant that is essentially taking over the world. PDD is popular in China and taking advantage of the lower-end commerce segments in Europe, the U.S., and globally. PDD reported revenues of $12.52 billion last quarter, a 123% YoY rise. PDD also beat consensus sales estimates by nearly $1.7 billion, a 16% beat, which is enormous.  PDD: It's Dirt Cheap EPS estimates (seekingalpha.com)PDD trades below 11 times forward EPS estimates and could provide much higher EPS than expected. PDD has crushed recent EPS projections ferociously, and the trend could continue. EPS vs. estimates (seekingalpha.com)The TTM consensus estimate was for around $4.50 in EPS. Yet, PDD reported $6.45 instead, a whopping outperformance rate of 43%. Even if we see a modest 20% beat rate in 2025, PDD could deliver about $13.20 in EPS instead of the projected depressed $10.88 EPS figure. Therefore, PDD could be trading below a nine on a forward P/E ratio basis, which is remarkably cheap for a company with high-quality growth and profitability prospects.  Moreover, PDD has high AI ambitions, and the company is increasing investment considerably while pursuing top talent hunts. PDD has shown a keen focus on recruiting top talent in the field of large language models and other areas associated with AI. I would not underestimate PDD's AI potential as the company achieved what companies like Alibaba couldn't by breaking into new major markets. Therefore, PDD could be an AI sleeper, with considerable profitability ahead for the eCommerce giant.  PDD Stock Unjustly Punished  PDD (stockcharts.com)Despite achieving exceptional results in recent quarters, PDD's stock price has been unjustly punished due to poor China-related sentiment and other transitory factors. However, we may be around a turning point, and PDD could go much higher as its momentum improves. The stock is exceptionally cheap now, and many analysts expect more big quarters as we move on.   My one-year price target range for PDD is $180-$225","kind":null,"is_publish_news":null,"is_publish_highlight":null,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.22.4","shortVersion":"4.22.4","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2423107321"}