China's economy and its impact on tech giants: opportunities for these 3 stocks
China is in economic stagnation and the country's government is trying to revive the economy through various measures. These measures include reducing banks' reserve requirements, adjusting interest rates and reducing down payment requirements for second home purchases. Another important step is the possibility of financing share purchases through the central bank.
This support could help large Chinese companies, including those traded on US exchanges. These include Baidu, Alibaba and JD.com, which could benefit significantly from these measures.
Baidu $BIDU: China's equivalent of Alphabet
Baidu is a tech giant best known for its search engine, but like the US's Alphabet (Google), it is also involved in other sectors such as cloud computing and robotaxi. Baidu has recently been struggling with a decline in advertising revenue and an overall slowdown in the economy, which has led to a 20% drop in stock value for the year.
Although the company's overall revenue was flat in the second quarter, its cloud services saw a 14% growth. The company is also undergoing a transformation of its search engine using generative artificial intelligence (AI) to provide more accurate answers to search queries. While this change is currently reducing the number of ad impressions, Baidu believes it will be the right strategy to drive more profits in the long run.
The economic stimulation could significantly improve consumer activity in China, which would have a positive impact on Baidu's advertising revenue and strengthen its market position.
Alibaba $BABA: E-commerce giant and cloud leader
Alibaba, often compared to Amazon, is another Chinese technology leader with an extensive portfolio in e-commerce, logistics and cloud computing. Although Alibaba's stock has gained more than 20% in the past year, it has fallen more than 40% in the past five years.
Like Baidu, Alibaba is facing increased competition and a weak domestic economy. Revenue from its core e-commerce segment fell 1% in the second quarter, even as orders grew double digits. The company is now focusing on improving the monetization of its platforms such as Taobao and Tmall.
Its cloud division is showing strong growth with a 6% year-over-year increase in revenue and a 155% increase in operating profit. Alibaba also recently introduced more than 100 AI models, which could further boost its growth in this segment.
The recovery of the Chinese economy should help Alibaba not only in e-commerce, but also in the continued development of cloud services and AI technologies.
JD.com $JD: A direct seller with an emphasis on logistics
JD.com, another major player in China's e-commerce market, focuses on direct sales of goods, with nearly half of its revenue coming from the sale of electronics and home appliances. Although its stock is up nearly 15% this year, it has only risen 10% over the past five years.
The company has struggled with weak domestic demand and competition, which has been reflected in its sales growth, which rose just 1.2% in the second quarter. The company's smaller grocery segment saw stronger growth, while sales of electronics and home appliances fell 4.6%.
JD.com is looking to improve its competitiveness by focusing on improving its supply chain and offering a better user experience. These steps have already led to an increase in the number of customers in both the higher and lower market segments.
With its focus on electronics and appliance sales, JD.com could be the biggest beneficiary of the trio of companies of a recovery in Chinese consumer demand, which could be boosted by government incentives.
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Source: Motley Fool.