After Earnings, Is Baidu Stock a Buy, a Sell, or Fairly Valued?

Baidu released its third-quarter earnings report on Nov. 18. Here’s Morningstar’s take on Baidu’s earnings and stock.

Key Morningstar Metrics for Baidu

• Fair Value Estimate: $146.00
• Morningstar Rating: ★★★★
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: High

What We Thought of Baidu’s Q3 Earnings

Baidu’s third-quarter 2025 revenue declined 7% year over year as advertising remains weak, but its artificial intelligence cloud continues to be a larger part of the company.

Why it matters: Overall revenue of CNY 31.2 billion was in line with our estimates, but core ad revenue fell 18% year on year, reflecting continued macro weakness. Meanwhile, AI cloud revenue increased 21% and now represents 25% of Baidu’s core revenue.

• Baidu has categorized its AI revenue into three segments: cloud infra, applications, and AI-native marketing services (included in ad revenue, not AI cloud). Cloud infra provides platform and hardware services to enterprises, grew 33% year on year, and accounts for about 60% of AI cloud revenue.
• AI-native marketing services, its AI-driven ad product designed to better target customers, grew 262% year on year to CNY 2.8 billion. Applications grew only 6%, offering AI assistant software to individuals and enterprises, generating CNY 2.6 billion.

The bottom line: We maintain our fair value estimate of $146 per share for wide-moat Baidu and believe the stock is undervalued, as the ad business is positioned to rebound once China’s economy recovers. AI cloud provides long-term upside as Baidu transforms its operations.

• Baidu did not provide specific guidance for the next quarter, only noting that ad revenue has bottomed this quarter. We’re still not seeing signs of a sharp recovery and thus forecast low-single-digit year-on-year growth for the next quarter and 2026.
• We expect AI cloud revenue to increase over 20% year on year next quarter, reflecting strength in its cloud infra segment. Its hyperscaler capabilities are evident here, and we believe investors may be overlooking long-term growth potential.

Between the lines: Baidu mostly focused on AI and robotaxis during the earnings call, with little mention of its search advertising. We believe this shift reflects a deeper commitment to transforming and rebranding the firm into an AI-oriented one.

Fair Value Estimate for Baidu Stock

With its 4-star rating, we believe Baidu’s stock is moderately undervalued compared with our long-term fair value estimate of $146 per share. The main revenue drivers will come from Baidu Core, mainly its online advertising and AI cloud segments. 73% of Core revenue still comes from online advertising, which will dictate near-term growth. However, growth has been decelerating, and long-term growth will likely hinge on its AI cloud and smart driving businesses. We forecast near-term (five-year) CAGR for its core online advertising business to be 6% for now, amid intensifying competition, and combined with its other businesses, including iQiyi and AI Cloud, should contribute to a 10% five-year CAGR overall.

Read more about Baidu’s fair value estimate.

Economic Moat Rating

Baidu’s wide economic moat is created by its network effect from a dominant share of the user base and intangible assets from years of AI development and research and development. As one of the earliest internet companies in China, Baidu has built an ecosystem around search and successfully shifted to mobile internet by releasing various well-received mobile apps, such as its flagship Baidu app, which had over 580 million monthly active users as of 2024, and Baidu Maps.

Read more about Baidu’s economic moat.

Financial Strength

Baidu’s balance sheet remains very well-capitalized, with around CNY 127 billion in cash and short-term investments to support CNY 74 billion in total debt as of Dec. 31, 2024. Its free cash flow was CNY 29 billion in 2024, which is sufficient to fund operations and maintain its moat through investments in new products.

Read more about Baidu’s financial strength.

Risk and Uncertainty

We assign Baidu a High Uncertainty Rating. We think the firm faces intense competition and uncertainty over whether its AI business will generate satisfactory returns.

Read more about Baidu’s risk and uncertainty.

BIDU Bulls Say

• Baidu is strengthening its mobile ecosystem with search, livestreaming, and mini programs, helping to create a closed-loop experience for users to acquire information and make transactions.
• Baidu is a leader in AI with autonomous driving in terms of the number of miles tested, and the number of driving licenses in China could become another growth catalyst.
• Sitting on a cash pile of over CNY 100 billion, Baidu has ample dry powder to invest in technology, particularly in AI, as well as merger and acquisition opportunities.

BIDU Bears Say

• Alibaba, Tencent, ByteDance, Kuaishou, and other social media platforms are competing in terms of advertising budgets, which will result in slow revenue growth for Baidu search.
• Despite numerous growth initiatives, there is great uncertainty whether the new businesses can be monetized successfully on a mass scale. Failure to do so would result in heavy margin drag.
• Baidu’s leadership and brand in search have been weakened by more competitors entering the market, such as Sogou, and could be affected by future regulatory risks.

This article was compiled by Frank Lee.