China’s AI Market Thrives: Baidu, Alibaba, and Tencent Poised for Growth

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China’s AI Market Thrives: Baidu, Alibaba, and Tencent Poised for Growth

China’s AI market is set for significant growth, with tech giants Baidu, Alibaba, and Tencent leading the way. According to analysts at capital markets and investment group CLSA, these companies are well-positioned to benefit from the lucrative potential of artificial intelligence.

The global AI market is estimated to reach $1 trillion by 2026, with generative AI driving productivity and innovation, contributing $100 billion to this figure. While the United States is expected to account for 55% of the growth, China is projected to become the world’s second-largest AI market with over 6% market share.

The foundation of AI development lies in computing power, and collectively, ByteDance, Tencent, Alibaba, and Baidu are the world’s second-largest buyers of AI chips, comprising 12% of the market. According to data from the International Data Corporation, Inspur, and Tsinghua University, China’s AI computing power is expected to surge eightfold by 2026. This growth will be driven primarily by AI cloud services.

CLSA analysts have identified Baidu, Alibaba, and Tencent as the cheapest AI plays that will lead China’s AI innovation. These companies are set to witness over 20% annual growth in their cloud components, as they move away from low-margin and highly customized projects. Alibaba, in particular, is noted for offering the best cloud infrastructure for large language models. The revenue of AliCloud, Alibaba’s cloud computing subsidiary, is expected to achieve a 20% three-year compound annual growth rate, while its international e-commerce division will experience accelerated growth.

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CLSA has given buy calls for Alibaba, Baidu, and Tencent, with target prices reflecting significant upside potential. Alibaba has a buy call at a target price of $158, representing a 78.9% increase from its closing price of $88.30 on September 12. Baidu and Tencent have buy calls at target prices of $184 and 500 Hong Kong dollars ($63.81), indicating potential increases of 33.2% and 55.3% respectively. CLSA points out that sector profit is at a historical high, whereas valuation is at a historical low for these companies.

Alibaba, Baidu, and Tencent are currently trading at price-to-earnings ratios of 8.8x, 13.1x, and 15.6x respectively, which solely reflect the value of their traditional businesses. The analysts estimate Alibaba’s cloud business to be worth $94 billion, compared to $27 billion for Tencent and $18 billion for Baidu. These figures account for around 40% of Alibaba and Baidu’s market capitalization, and 10% of Tencent’s.

Overall, China’s AI market is thriving, driven by companies like Baidu, Alibaba, and Tencent. These tech giants are well-positioned to capitalize on the growing demand for artificial intelligence and cloud services. With their strong market presence and potential for innovation, they are set to play a significant role in shaping China’s AI landscape in the coming years.

CNBC’s Michael Bloom contributed to this report.

Frequently Asked Questions (FAQs) Related to the Above News

Which tech giants are leading the AI market in China?

Baidu, Alibaba, and Tencent are the leading tech giants in China's AI market.

What is the projected growth of the global AI market?

The global AI market is estimated to reach $1 trillion by 2026.

How much is the generative AI expected to contribute to this figure?

Generative AI is expected to contribute $100 billion to the estimated $1 trillion global AI market.

What percentage of the global AI market share is China expected to have?

China is projected to have over 6% market share and become the world's second-largest AI market.

What is the driving force behind AI development in China?

The foundation of AI development in China lies in computing power, which is expected to surge eightfold by 2026 primarily due to AI cloud services.

Which companies are the world's second-largest buyers of AI chips?

ByteDance, Tencent, Alibaba, and Baidu collectively comprise the world's second-largest buyers of AI chips, accounting for 12% of the market.

Which companies have been identified as leading China's AI innovation?

Baidu, Alibaba, and Tencent have been identified as leading China's AI innovation by CLSA analysts.

Which company is noted for offering the best cloud infrastructure for large language models?

Alibaba is noted for offering the best cloud infrastructure for large language models.

What are the buy calls given by CLSA for Alibaba, Baidu, and Tencent?

CLSA has given buy calls for Alibaba, Baidu, and Tencent.

What target price has been set for Alibaba, and what potential increase does it represent?

Alibaba has a buy call at a target price of $158, representing a 78.9% increase from its closing price of $88.30 on September 12.

What target prices have been set for Baidu and Tencent, and what potential increases do they represent?

Baidu has a buy call at a target price of $184, indicating a potential increase of 33.2%. Tencent has a buy call at a target price of 500 Hong Kong dollars ($63.81), indicating a potential increase of 55.3%.

What are the price-to-earnings ratios of Alibaba, Baidu, and Tencent?

Alibaba, Baidu, and Tencent are currently trading at price-to-earnings ratios of 8.8x, 13.1x, and 15.6x respectively.

How much is Alibaba's cloud business estimated to be worth?

Analysts estimate Alibaba's cloud business to be worth $94 billion.

What percentage of the market capitalization do Alibaba's and Baidu's cloud businesses account for?

Alibaba's and Baidu's cloud businesses account for around 40% of their market capitalization.

What role do Baidu, Alibaba, and Tencent play in shaping China's AI landscape?

Baidu, Alibaba, and Tencent, with their strong market presence and potential for innovation, are set to play a significant role in shaping China's AI landscape in the coming years.

Please note that the FAQs provided on this page are based on the news article published. While we strive to provide accurate and up-to-date information, it is always recommended to consult relevant authorities or professionals before making any decisions or taking action based on the FAQs or the news article.

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