Why China tech could be a hidden opportunity

While we are seeing the trade war between China and the US escalate to the point where China is looking to build its own chips instead of relying on America, the US is shoring up its resources to become less dependent on China for critical minerals.

It will take time for both countries to reduce their reliance on each other, but one thing is becoming increasingly clear - deglobalisation is more real than ever. With AI now sitting at the centre of the competition between the two nations, it appears to be a race to see who reaches the top first, without either side trying to slow the other down.

This leads me to talk about Baidu. The “Chinese Google” has had a strong 2025, up around 40%. But does it still have legs?

Investors are paying what’s often called the “China tax” — a discount applied for the lack of transparency, mounting levels of state debt, and fears of China becoming the next Japan of the early 1990s.

This discount is reflected in the Chinese Tech Index’s average P/E ratio, which is trading below its historical average.

Is this China tax fair? Some argue yes, some no. And if we are to apply a China discount to investing in their shares, how large should that be? Should it be a discount to the historical Tech Index P/E (pre-AI boom), or a discount to the average AI P/E in the US? If it’s the former, current levels look like fair value; if it’s the latter, the sector appears significantly undervalued.

Baidu operates across search, AI, cloud computing, and robo-taxis — yet it’s trading below the valuation levels of some Australian banks, despite its growth potential being far higher than that of the traditional banking and financial sector. Sure, CBA may have the best banking app and is investing heavily in technology, but its core business remains banking — historically not the most growth-oriented sector.

Looking at Baidu’s balance sheet as of June 2025, it holds around USD 4 billion in cash, USD 13 billion in short-term investments, USD 6 billion in long-term investments, and USD 14 billion in maturity investments — totalling roughly USD 37 billion. Against total liabilities of about USD 20 billion (taking all liabilities into account), this gives a net position of around USD 17 billion.

Goldman Sachs estimates Baidu’s cash and investments at USD 27.5 billion, or about USD 80.60 per share, with the company trading at an enterprise value of roughly USD 30 billion.

With that in mind, Baidu’s P/E is below the current China Tech Index at 16.7x, or 11.8x based on 2027 estimates, while the market expects around 6.67% revenue growth p.a. over the next two years.

That’s for a company growing more than 20% year-on-year in its cloud and robo-taxi divisions. While advertising revenue (which currently makes up about 70% of total revenue) is declining, the company is successfully diversifying away from this single segment. According to Goldman Sachs, ad revenue is expected to fall to 47% of total revenue, while cloud services are projected to grow from 21% to 36%. These figures seem realistic given the surging demand for data storage in the age of AI.

I’m not suggesting that China will grow as fast as America or that it doesn’t warrant a discount. However, it may one day be able to grow without relying on the US — and the current valuation gap between the two markets and industries seems too wide to ignore.

For context, the S&P 500 trades around 21x earnings, while the top 10 AI/tech focused companies are trading at a median of 31x as shown below.

Even in an extreme scenario where the US restricts China’s access to capital markets — creating a liquidity-driven discount — it’s still questionable whether Baidu deserves a discount this deep.

I’m not saying Baidu should trade at 31x, but perhaps somewhere in the 15–20x range seems reasonable. Then again, markets often push valuations wherever the story takes them.