Baidu (BIDU Quick QuoteBIDU - Free Report) and Alibaba (BABA Quick QuoteBABA - Free Report) are two of China’s tech titans that have increasingly pivoted toward artificial intelligence (AI). Both companies dominate their respective fields – Baidu in online search and AI cloud services, Alibaba in e-commerce and cloud computing – yet they share notable similarities. Each is profitable, generates substantial cash, and has been pouring investments into cutting-edge AI research and applications.

In fact, Chinese tech companies like Alibaba and Baidu have recently captured renewed investor attention thanks to a series of positive developments (including massive government stimulus and the rise of AI services) after a few challenging years. With China’s AI sector booming, these two companies stand out as key players riding the trend.

Let's dive deep and closely compare the fundamentals of the two stocks to determine which one is a better investment now.

The Case for Baidu Stock

Baidu, often dubbed “China’s Google,” has successfully repositioned itself as an AI-first company, marking a significant shift toward cloud computing and AI services in recent years. The company’s aggressive push into AI has yielded promising results, particularly in its first-quarter 2025 performance. Baidu Core’s revenue growth was driven largely by its AI Cloud business, which surged 42% year over year. AI Cloud now represents 26% of Baidu Core’s revenue, up from 20% in the same period the previous year, highlighting increasing recognition of Baidu's AI capabilities.

A key driver behind Baidu’s AI growth is its model-as-a-service platform, Qianfan, which offers an extensive model library and supports fine-tuning of multimodal and reasoning models. By reducing inference costs, Qianfan has made Baidu’s cloud offerings especially attractive to enterprise clients, bolstering subscription-based revenue. (read more: Baidu's Q1 Earnings & Revenues Top Estimates, Margins Down Y/Y).

Baidu further strengthened its AI leadership with the launch of ERNIE 4.5 and ERNIE X1, and their Turbo versions in April 2025. These models promise superior performance at lower costs, enabled by Baidu’s unique four-layer AI architecture that optimizes infrastructure, frameworks, models, and applications. As part of its strategy to drive accessibility, Baidu plans to open-source ERNIE 4.5 by June 30, 2025, helping expand its ecosystem.

Despite challenges such as U.S. chip export restrictions, Baidu remains confident in its ability to maintain momentum, citing efficient GPU utilization and growing domestic chip capabilities. Additionally, Baidu’s mobile search product is increasingly AI-driven, with 35% of mobile search results now featuring AI-generated content, up from 22% in January.

In terms of challenges, the company posted a negative free cash flow of RMB 8.9 billion in the first quarter, largely due to elevated AI investments despite a strong operating margin of 16% for Baidu Core and a non-GAAP margin of 19%. Management signaled further increases in capital outlays for AI Cloud, model development, autonomous driving, and AI search transformation in 2025.

The ongoing weakness in online advertising is a concern. Even in the latest quarter, Baidu’s core online marketing revenues declined 6% year over year, extending the prior year’s decline. Competition from rivals (e.g., ByteDance’s TikTok/Douyin in advertising, Tencent in digital ads, etc.) and the shift of ad budgets to new platforms have made it harder for Baidu to grow its search ad business. In cloud computing and AI, Baidu faces competition from Alibaba Cloud and Tencent Holdings Limited’s (TCEHY Quick QuoteTCEHY - Free Report) cloud services.

The Case for Alibaba Stock

Alibaba, China’s e-commerce behemoth, has staged a notable comeback in the past year. Alibaba’s core strength is its diversified, powerhouse business model. The company operates a vast commerce ecosystem that spans Chinese consumer marketplaces (Taobao, Tmall), international retail platforms (AliExpress, Lazada), wholesale trade, logistics (Cainiao), local services, digital media, and more. These commerce-related segments collectively still account for over half of Alibaba’s revenue.

A major driver of Alibaba’s latest fourth-quarter performance was the strong momentum in its Cloud and AI segments. Alibaba Cloud revenue accelerated 18% year over year, with public cloud services growing even faster. This surge was fueled by robust demand for AI infrastructure, particularly as enterprises—both digital-native and traditional—began migrating workloads to the cloud to deploy AI applications. Notably, AI-related product revenue maintained triple-digit growth for the seventh consecutive quarter, demonstrating sustained momentum. The company’s open-sourced Qwen3 model series, spanning multiple sizes and use cases, added further weight to its leadership in AI technology. (read more: Alibaba Q4 Earnings Surpass Estimates, Revenues Increase Y/Y)

In the domestic e-commerce segment, Alibaba made meaningful progress in monetization. Taobao and Tmall Group posted a 12% rise in customer management revenue, driven by increased take rates. Key contributors included the rollout of a 0.6% software service fee and deeper adoption of Quanzhantui (QZT), a self-service ad platform designed to boost merchant marketing efficiency. Additionally, the growth in 88VIP memberships (which surpassed 50 million) and rising average revenue per user (ARPU) suggested improving customer loyalty and higher monetization potential. The integration of AI into search, recommendations, and advertising further enhanced user experience and operational efficiency.

Lastly, Alibaba’s capital allocation strategy also underscored its underlying financial strength. The company returned $16.5 billion to shareholders via dividends and buybacks while selling non-core assets to sharpen its focus on AI and core commerce. These actions, combined with a strong net cash position, gave Alibaba the flexibility to continue investing in strategic growth areas such as instant commerce and AI infrastructure.

The company faces key challenges, including intense competition in China's e-commerce space, rising costs from strategic investments in instant commerce and AI infrastructure, and macroeconomic and geopolitical risks. In the cloud segment, despite robust AI-driven demand, Alibaba is grappling with increased infrastructure costs. The company reported a 76% decline in free cash flow, largely due to elevated capital expenditures related to AI and cloud capacity expansion. These factors are contributing to margin pressure despite strong revenue momentum, as seen in the quarter’s 1.9 percentage point quarter-over-quarter decline in adjusted EBITDA margin. While profitability is under pressure in the short term, Alibaba remains focused on long-term growth by streamlining operations and investing in high-potential segments.

Additionally, Alibaba must navigate macroeconomic and geopolitical risks, especially in its international commerce business. Global trade regulation uncertainties and regional economic headwinds present structural challenges that could affect cross-border performance and profitability.

Share Price Performance & Valuation of BIDU & BABA Stocks

As you can see below, Baidu’s shares have struggled to gain momentum year to date. Concerns about China’s economy and U.S.–China tensions have weighed on sentiment for China-exposed stocks like Baidu. Unlike Baidu, Alibaba’s shares have been on a bullish tear, climbing 42.4% so far this year.

Image Source: Zacks Investment Research

Meanwhile, Baidu’s underperformance has left the stock looking quite cheap. At roughly the mid-$80s per share, Baidu trades at about 7.84X forward 12-month P/E ratio compared with BABA’s 11.13X.

Image Source: Zacks Investment Research

Earnings Estimates Trend & Growth Rate for Baidu and Alibaba Stocks

Over the past 30 days, the Zacks Consensus Estimate for Baidu has remained unchanged, while that for Alibaba’s current-year earnings per share (EPS) has decreased, as you can see below.

The contrast in growth rates is notable — for the current year, the analysts expect BIDU’s revenues to rise 2.2% to $18.9 billion and EPS to decline 4.3% to $10.08. BABA is expected to witness its revenue grow 3.8% to $143.4 billion and EPS grow 17.9% to $10.62. Alibaba’s growth momentum and profitability heading into 2025 look solid, giving it plenty of financial firepower to continue investing in AI and other growth areas. This justifies its premium valuation.

For Baidu Stock

Image Source: Zacks Investment Research

For Alibaba Stock

Image Source: Zacks Investment Research

Conclusion

Both Baidu and Alibaba stocks currently carry a Zacks Rank #3 (Hold). Both Baidu and Alibaba are positioning themselves as leaders in the rapidly expanding AI space, but they do so in different ways. Baidu’s focus on autonomous driving and AI-powered cloud services is a bold, high-risk, high-reward strategy. Its valuation is attractive, especially considering the long-term potential of its AI and autonomous driving businesses. However, the company is more dependent on regulatory outcomes in China, which adds some volatility to its prospects. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

On the other hand, Alibaba benefits from a diversified business model that includes e-commerce, logistics, and cloud computing, giving it multiple revenue streams that can support AI investment initiatives. While Alibaba’s AI investments are not as bold as Baidu’s autonomous driving ventures, its integrated approach in e-commerce and logistics gives it a more secure foundation for growth. The company’s international exposure also provides an edge, particularly in a growing market like Southeast Asia. In conclusion, both stocks have strong AI-driven growth stories, but the edge goes to Alibaba for its diversified business model, consistent revenue generation from e-commerce, and international growth opportunities.