Alibaba (BABA) is well-positioned to benefit from current trends in the China Internet space, while Baidu (BIDU) is lagging its peers in the sector, JPMorgan wrote in a note to investors today. After assuming coverage of the Chinese Internet space, JPMorgan analyst Alex Yao raised the firm's price target on Alibaba and downgraded Baidu to Underweight, the firm's equivalent of a sell rating.

ALIBABA IMPROVED POSITION: Alibaba has significantly increased the engagement levels of its user base by introducing content and services, Yao tells investors. The e-commerce giant has also benefited from its social and user-generated content, which appeal to China's newer Internet users, the analyst stated. Furthermore, the company's core e-commerce business is growing quickly and its monetization levels should improve going forward, wrote Yao, who raised his price target on the shares to $135 from $129.

CAUTIOUS ON BAIDU: Yao said he is "cautious" on Baidu, primarily due to his belief that the growth of the company's core search ads is poised to moderate. Chinese search engines will likely lose ad revenue share to social websites due to changes in user engagement and "traffic distribution power," Yao believes. Moreover, Baidu's user engagement trends have been deteriorating, and the company does not have any growth engines other than search, as all of its other initiatives are in the early stages of development, the analyst stated. Additionally, tougher regulations will probably hurt the growth of Baidu's search engine in the near-term, warned Yaho, who says that the chances of the stock dropping significantly have increased. He set a $164 price target on the shares.

OTHER NAMES: Yao is upbeat on Tecent (TCEHY), saying that, like Alibaba, the e-commerce company's engagement levels have risen significantly due to new content and services it has introduced. Microblog Weibo (WB), online travel agency Ctrip (CTRP), and online auto marketer Bitauto (BITA) have "clear competitive positions and scalable business models," while social networking website Momo (MOMO) and group activities website YY (YY) should benefit from the monetization of their mobile video services, the analyst stated. He kept Overweight ratings on all of the above stocks. Yao placed Neutral ratings on e-commerce company JD (JD) and auto information provider AutoHome (ATHM), saying that JD will likely have to invest a great deal in its growth, while AutoHome faces uncertainty following the emergence of a new controlling shareholder and changes to its management.

PRICE ACTION: Near noon, Alibaba added 0.7% to $96.70 and Baidu fell 2.7% to $170.77.