Baidu Earnings: Advertising Still Struggling, but AI Cloud Becoming More Material to Long-Term Plans

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 Earnings

Baidu’s BIDU second-quarter 2025 revenue declined 4% year over year due to continued weakness in advertising, but this was offset by the firm’s enterprise artificial intelligence cloud and emerging generative AI businesses.

Why it matters: Overall core revenue was in line with our estimates, but advertising revenue fell 15% year on year, which was 4% worse. However, AI cloud and generative AI revenue increased by 27% and 364% year over year, respectively, becoming a larger, transformative part of Baidu.

• Baidu guided to a 25% year-on-year decline for ads next quarter, due to macroeconomic weakness and the inability to monetize AI search so far, which has cannibalized traditional search. While worse than expected, we see long-term stabilization as more important to valuation, as we only assume 1% midcycle ad growth.
• We believe market share gains will slowly allow Baidu to diversify away from ads as its main valuation driver.

The bottom line: We maintain our fair value estimate of $146 per share and believe the stock is undervalued, since the ad business structure remains intact while AI cloud provides additional long-term upside. We expect ad revenue to recover along with the economy.

• While investor sentiment may be down due to concerns over ad revenue losses, we believe the market may be overlooking its generative AI business as it has grown to 13% of ad revenue, suggesting greater demand as clients are embracing and seeing better ad targeting despite macro softness.
• We also believe investors are overlooking Baidu’s long-term positioning as a hyperscaler, as it is one of the few companies that can scale and develop AI infrastructure for other enterprises.