BAIDU (BIDU) - Top 10 Artificial Intelligence Stocks Investing To Profit from AI Mega-trend
Companies / AI May 02, 2019 - 05:14 PM GMTBy: Nadeem_Walayat
This is my latest analysis in my machine intelligence investing mega-trend series that warns to prepare for EVERYTHING to change EXPONENTIALLY when average machine intelligence surpasses average human intelligence following which it will be off to the races. When the pace of change will leave everything that has happened before far behind. And in my opinion that key date will occur sometime during 2022, i.e. in less than 4 years time! Which means if you have not already got your act together by getting onboard this investing gravy train then you really need to take action or kick yourself many years down the road, when you will be asking yourself why I did not invest in those AI stocks before they went stratospheric!
If you've not already done so then watch my following video from November 2016 which illustrates why everything will start to change exponentially by 2022.
Machine Intelligence has become a broad church that has fragmented or branched off into a myriad of sectors and the number keeps expanding every year. Many years ago I broke the machine intelligence mega-trend down into 9 key sectors that I have now further fragmented into 10 by basically adding Cyber Security as the following list illustrates, the 10 key machine mega-trend sectors to invest in.
However the grand daddy of ALL of the 10 sectors is Artificial Intelligence, which is the PRIMARY FOCUS for investing. All of the other sectors are DERIVATIVES of AI. Which means one could ignore most if not all of the other sectors and just focus on investing in Artificial Intelligence, for most of the AI stocks by nature encompass aspects of the derivative sectors.
AI STOCKS
So what do I mean by investing in Artificial Intelligence stocks. Basically this is investing in companies that are at the very forefront of developing self learning technology as the back bone of their business rather than for instance a company that is just focused on developing a self driving car, usually using AI already developed by another corporation.
So when investing in Artificial Intelligence I am basically focus on 10 Tech giants that have both existing DEMAND for raw processing power of self learning algorithms and the resources to to commit to the development of artificial intelligence i.e. billions of dollars sat in the bank. So you should not be surprised if you recognise most of the stocks on my Top 10 AI investing list.
How to Invest in Stocks
First a brief primer of how to actually invest in stocks and no I don't mean the dynamics of placing orders with brokers.
1. ACCUMULATE - The objective is to accumulate positions over time so as to avoid major peaks and troughs. Timing doesn't make much difference because you don't have the benefit of hindsight when investing i.e. it does not really matter if the stock market is soaring or plunging. So set yourself a monetary target of how much of each stock your aiming to accumulate over a period of time.
2. Target Stocks List - You are going to have a list of target stocks that you are always ready to accumulate into whenever the opportunity arises. So that whenever the stock market does take a tumble, your not sat twiddling your thumbs trying to work out which stocks to buy because you already have a list of stocks PLUS a target amount to buy based on your AI investing game plan.
3. Best Stock Picking Indicator - Most analysts obsesses over stock fundamentals. However whilst significant, in my opinion the most important indicator of how the stock is doing is its performance relative to the general stock market indices, as you want to be wary of buying a stock when it is UNDER PERFORMING against the general stock market indices, which is a warning sign that something could be going wrong that may take a while to show up in corporate data.
4. Remember you are INVESTING NOT TRADING. So you are going to be committing funds for at least 5 years and likely more than 10. My strategy is basically to invest and forget. I don't do use online portfolio updaters, which can result in people wasting time checking the value of their portfolios several times a day! Instead I use manually updated spreadsheets that at best I update quarterly, and usually a less frequently. Because I am INVESTING NOT TRADING. For instance I have held some stocks for DECADES!
So basically don't think too much about what your invested in after you have invested. i.e. avoid regular monitoring otherwise you may end up making the mistake of bailing out that you will likely regret selling later.
5. Market Timing - I know its hard to tell you not to time your entries, especially after the market has had a good run and ones instincts are wait for a correction, but then you'll end up waiting that bit longer and the stock will start to rise again, and so you'll want to wait for it get back to where it was when you were going to buy but you didn't because you thought it would go lower, instead it goes even higher. Now you think to yourself DAMN I've missed the move, and then wait for it to fall again. All the while the stock keeps trending higher as one would expect a good stock to do!
Firstly, this there is NO such thing as a missed market move! Because everything is always clear in HINDSIGHT! ACCUMULATE! Don't worry about what the price is doing at any particular point in time, it's just noise, instead ACCUMULATE! Keep your eye on the big picture. For instance I have been accumulating some XXX every year for the past 10 years! Regardless of where the price its trading i.e. every year I put money into my ISA's and Pension Fund and then INVEST that into the list of target stocks. Trying to time for a few extra percent is just a waste of time. YES, if the market takes a PLUNGE and presents one with an buying opportunity then TAKE IT, but don't try to time entries for individual stocks, because then you will likely fall foul of the "missed market move" syndrome and become stuck.
6. Dividend vs Buy back - Most will be aware that tech stocks, even some tech giants don't tend to pay dividends. Instead what investors usually get are share buy backs that result in capital appreciation rather than income. So annual dividend payments should be seen as a bonus as the primary return is capital appreciation, in significant part courtesy of share buy backs. That also tends to act as support in times of falling stock prices, i.e. companies step in to buy their own shares because they deem them to be cheap. In terms of total returns, investors tend to do best in companies that regularly buy back their stock.
7. LIMIT RISK - Investing in the stock market is high risk! So investors should aim to minimise that risk, and one such way of doing so is to NOT to invest in SMALL and Medium cap stocks, where you will basically be gambling with your money. So if you have come here for a list of small cap get rich quick stocks then you will be disappointed. My investing objective is to maximise long-term returns whilst minimising risk to capital, which is why I don't have sleepless nights worrying about how my stocks portfolio is doing following the latest flash crash because I understand that the stocks I have selected have a very high probability of delivering in the LONG-RUN.
TOP TEN AI Stocks
Where to invest to profit from the exponential machine intelligence mega-trend. I have ranked these stocks in in terms of risk vs reward and volatility. Do remember that when investing in the stock market that your capital is at risk. There are NO SURE BETS!
The stocks are ranked in order of priority. Also to further break down the list, I consider the first 5 stocks as PRIMARY i.e. the most important. The next 3 as of SECONDARY importance and finally 2 far more risky TERTIARY stocks.
The stock analysis is being published in reverse order as this analysis has first been made available to Patrons who support my work: https://www.patreon.com/posts/top-10-ai-stocks-25779914
So for immediate First Access to ALL of my analysis and trend forecasts then do consider becoming a Patron by supporting my work for just $3 per month. https://www.patreon.com/Nadeem_Walayat.
TERTIARY STOCKS
10. BAIDU - BIDU
Putting the war with China mega-trend on pause for the moment and considering China's Google. We all know that China developed at hyper speed courtesy of stolen western tech given China's army of hackers and stealers of corporate intellectual property. And well, so chinese companies such as Baidu (China's Facebook) get to develop without having to invest anywhere near as much in R&D as the likes of Google are doing. Baidu is definitely a significant competitor to Google in a whole spectrum of AI related sectors from search right down to self drive cars. In fact every time Google announces a new project, a couple of months later Baidu pops up with something similar. So why shouldn't we attempt to profit from it as well? Even if investing in Chinese stocks is higher risk given that China is a totalitarian state with far less transparency of what is actually going on under the corporate hood.
Baidu Financials
| Current Price | $164.8 | |
| Market Cap | $58bn | |
| Enterprise Value | $57bn | |
| Total Cash | ? | |
| Net Income | $4.15bn | |
| P/E Ratio | 13.9 | |
| Forward P/E | 13.9 | |
| Dividend Yield | ||
| Sales Growth | 23.2% | |
| Price to Sales Ratio (lower better) | 3.61 | |
| Price to Cash Flow Ratio (lower better) | 10.26 | |
| PEG Ratio (lower better) | 47.6 | |
| Debt to Equity (lower better) | 36.93 | |
| Stock Price 3 Year Change | -13% | |
| Ratio to S&P | -34% |
Baidu is quite indebted with apparently slow earnings growth. Though sales growth is strong.
Trend - The Baidu stock prices poor performance reflects the Chinese stocks bear market. The stock stands up just 18% in 3 year, under performing the S&P by 50%. Though it should be noted 9 months ago the stock was up 50% since which time it has been in a severe bear market. Given the drop from 280 to 165, one could say that the stock is cheap, though it could get cheaper yet.
Long-term Investing - Baidu 'should' prosper from the machine intelligence mega-trend which ultimately means Baidu is set to target and break its previous high of $280 set about 9 months ago.
Conclusion - Baidu is a more risky AI play, but on the plus side it's outside of the US TEK basket of stocks so offers AI portfolio diversification. In terms of its poor performance during the past few years, we'll that reflects the chinese stocks bear market, and given that one of my investing rules is to accumulate when markets plunge then Baidu trading at $165 looks like a classic long-term buying opportunity even if the stock is riskier than most on this list.And there you have it my top 10 AI stock picks for long-term investing exposure to the machine intelligence mega-trend.
Again this the whole of this analysis has first been made available to Patrons who support my work: https://www.patreon.com/posts/top-10-ai-stocks-25779914
So for immediate First Access to ALL of my analysis and trend forecasts then do consider becoming a Patron by supporting my work for just $3 per month. https://www.patreon.com/Nadeem_Walayat.
Your analyst
Nadeem Walayat
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Nadeem Walayat has over 30 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis focuses on UK inflation, economy, interest rates and housing market. He is the author of five ebook's in the The Inflation Mega-Trend and Stocks Stealth Bull Market series that can be downloaded for Free.
Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication that presents in-depth analysis from over 1000 experienced analysts on a range of views of the probable direction of the financial markets, thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.
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