tech stocks

Which Tech Stock Has More Room To Run In 2020?

Alphabet (GOOGL Stock Report) and Baidu (BIDU Stock Report) are two of the top names in online search. The former maintains its stronghold in the global internet search arena, whereas the latter has dominated the market in China. Both tech titans are listed on Nasdaq and operate in a similar fashion. And the only difference is the market they serve. Yes, I get that operating only in China may seem to suggest a smaller market compared to Alphabet’s global footprints. But then again China is a huge market in itself, with its own technology ecosystem. In fact, even in its own market, China has surprised many with the tremendous growth in its internet sector.

Like Google, Baidu is not just a company with offering only the search product.

It has a portfolio of products and services. Both Baidu and Google have multiple offerings across search, social, knowledge, music, PC client software, mobile, location-based services, games, translation, and open platform for developers. And in terms of stock performance, both GOOGL stock and BIDU stock saw their stock prices rallied nearly 50% since March.

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Baidu Beat Estimates But Overshadowed By iQIYI’s Probe

With declining revenue and having its streaming service iQIYI (IQ Stock Report) probed by the U.S. Securities & Exchange Commission, Baidu was hit with a double whammy this week. BIDU stock and IQ stock slipped as much as 6% and 11% respectively during the pre-market trading at the time of writing. The disclosure of the SEC investigation could raise new concerns about Chinese companies listed in the US like iQIYI. Luckin Coffee (LK Stock Report), once billed as China’s answer to Starbucks (SBUX Stock Report) was delisted from the Nasdaq this year. This came after it admitted to fabricating hundreds of millions of dollars in sales. 

best tech stocks to buy (BIDU stock)

It should be noted that Baidu generates the majority of its revenues from online ads. And the data it collects from users in this process, along with its presence and expansion in smart speakers, virtual assistants, and driverless cars – promises a potential growth trajectory in the Artificial Intelligence market. Notably, the dependence on its unprofitable streaming video iQIYI for revenue growth does not appear to be bearing as much fruit. The company is also affected by the massive success of ByteDance’s Douyin, the version of TikTok in China. Nevertheless, Baidu has retained a sizable piece of the Chinese advertising market.

All in all, Baidu will still be able to continue its dominance and growth in China, with localized offerings in the world’s most populous nation. The country still has limited internet penetration compared to the US, signaling plenty of upside potential for BIDU stock.

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No matter how you look at it, the Google search platform is dominating the global market. It was responsible for between 92% and 93% of all internet searches worldwide over the trailing 12-month period. That’s a huge market where businesses can potentially reach by using Google’s targeted advertising.

best tech stocks (GOOGL stock)

And the worldwide ad market continues to grow over time. This is true over the long term. That’s despite times of recessions, like the one we are in now. As such, the ad market continues to be expanding. If we factor in the decline in print and television advertising, the growth in online advertising cannot be underestimated. All this is good for Alphabet. And it would be even better if traffic acquisition costs decline over time.

One other point is, of course, Google Cloud. Google Cloud saw a 43% year-over-year growth in the second quarter. The segment surpassed $3 billion in quarterly sales for the first time ever. Cloud revenue has considerably better margins in comparison with ad-based revenue. This could suggest an upward drifting Alphabet cash flow as the company continues to expand its cloud business. 

Bottom Line

Baidu and Alphabet both fed off their strong advertising businesses to subsidize their expansion into new opportunities to grow their respective ecosystems. Now, the recent SEC probe on iQIYI could be a big problem for Baidu. If iQIYI is indeed guilty, this will be a massive shock to both BIDU stock and IQ stock. So, if I am making an investment today, I wouldn’t want to take a risk on BIDU stock until after the probe.

Moreover, the ongoing trade disputes and geopolitical tensions with China could affect sentiments of Chinese stocks. This is especially true for those traded in the US. Investors might be better off betting on the power of Google’s market dominance globally. This avoids placing too much reliance in any one country. In this way, Alphabet would serve to provide a more diversified play for investors.

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