Baidu

Baidu missed the mobile revolution in China despite being the country's leading search engine provider, but it has a new way to tap China's growing internet penetration. The company has used its search leadership to get to

Baidu has been aggressively investing in AI in several areas, such as self-driving cars, cloud computing, and smart homes. Its moves in these markets are beginning to bear fruit -- revenue in fiscal 2017 increased 20% year over year. Looking ahead, Baidu can sustain its impressive growth thanks to the integration of AI in fast-growing areas such as the cloud.

The company released a hybrid cloud platform last September to help enterprise customers integrate and deploy more than 60 types of AI capabilities in their operations. Using Baidu's platform, customers can perform tasks such as image, facial and speech recognition; and video content analysis.

Baidu's customers are already using this new platform to improve their businesses, allowing Baidu to consolidate a share of the fast-growing cloud computing market in China, which is expected to be worth $103 billion by 2020.

The company is also seeking to tap into China's growing hunger for video content. Its content investments in its online video platform -- iQiyi -- increased 70% in fiscal 2017 to $2.1 billion as it tries for a bigger share of this booming market. Baidu is currently in a fight with Tencent for leadership in this space, so it has decided to file for an initial public offering to float iQiyi in the U.S.

It's being reported that Baidu plans to raise around $1 billion with this offering, which should allow it to bolster its position in China's online video streaming market, which is projected to be worth almost $18 billion by 2020.

Investors looking to take advantage of China's rapid internet growth should definitely consider Baidu, especially given its attractive valuation. The stock has a trailing price-to-earnings (P/E) ratio of 31, significantly lower than the industry average of 55.

The Foolish bottom line

NetEase and Baidu will be the beneficiaries of growing internet penetration in China. NetEase can target more mobile gaming users, while Baidu will benefit from an increase in demand for video content and cloud computing. With both stocks trading at reasonable levels, that makes them top picks among Chinese internet stocks.

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Teresa Kersten is an employee of LinkedIn and is a member of The Motley Fool's board of directors. LinkedIn is owned by Microsoft. Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Activision Blizzard, Baidu, NetEase, and Tencent Holdings. The Motley Fool has a disclosure policy.