Baidu’s Strategic Pivot: Chip Unit Spinoff Highlights AI Ambitions

Baidu US0567521085

Baidu finds itself at a critical strategic juncture. The Chinese technology conglomerate is navigating a decline in its core advertising operations by aggressively pursuing next-generation technologies, with artificial intelligence and autonomous driving at the forefront. Market sentiment received a significant boost from the company's confirmation that it is considering a public listing for its AI chip subsidiary, Kunlunxin, sparking fresh debate about the firm's underlying valuation.

The company's fundamental picture presents a stark contrast. Its traditional online marketing revenue, which forms the financial backbone of the business, contracted by 18% year-over-year in the third quarter of 2025. This persistent weakness reflects broader challenges in China's digital advertising sector and intense competition from integrated e-commerce and social media platforms.

In direct opposition to this trend, Baidu's future-oriented segments are expanding rapidly. Its autonomous ride-hailing service, Apollo Go, completed 3.1 million fully driverless rides in Q3 2025, representing a staggering 212% increase from the prior year. The unit's global footprint is widening; following regulatory approval in Abu Dhabi, Apollo Go has now initiated a pilot program with PostBus in Switzerland. These developments signal growing regulatory confidence and the advancing commercial viability of Baidu's self-driving technology.

Valuation Presents a Mixed Analysis

From an analytical perspective, Baidu's equity presents a complex valuation case. According to a discounted cash flow model, the stock may currently be overvalued by approximately 23%. It trades at a price-to-earnings ratio of about 35.8, which is roughly double the industry average of 17.1 for the Interactive Media and Services sector. Market researchers, on average, maintain a "Moderate Buy" rating on the shares with a consensus price target of $146.11.

Despite these valuation concerns, the stock has delivered substantial returns over extended periods. Since the start of the year, it has gained nearly 50%, and its twelve-month advance stands at around 39%. This rally has been primarily fueled by optimistic assessments of the company's long-term ambitions in AI and cloud computing.

Kunlunxin Spinoff: A Catalyst for Unlocking Value

The primary catalyst for recent share price movement is the confirmed exploration of a spinoff and separate listing for the semiconductor unit, Kunlunxin. The planned initial public offering in Hong Kong could value the chip division at around $3 billion. Baidu's strategy aims to file the application in the first quarter of 2026, targeting a completed IPO by early 2027. This move is designed to unlock the standalone value of its in-house chip development, a critical asset in China's fiercely competitive AI hardware market. The announcement was initially received positively, driving the share price up by 3.4% in pre-market trading.

Baidu shares recently traded at approximately €106.80, having given up some gains over the preceding seven days. The immediate price action also mirrored broader caution in Hong Kong markets, which reacted to weak economic indicators from China. Investors are now focused on forthcoming details regarding the Kunlunxin separation and the company's fourth-quarter 2025 financial results.