Baidu Earnings: Weakness in Advertising Offset by Continued Double-Digit Growth in Cloud Business

We keep our fair value estimate for Baidu at USD 174, or HKD 171 per share after it posted first-quarter revenue of CNY 31.1 billion that was in line with our estimate. Core Baidu advertising revenue increased only 3% year on year, underscoring continued weakness in China’s macroeconomy. Advertising headwinds were offset by 12% year-on-year growth for the cloud artificial intelligence business, which should remain a bright spot for Baidu as revenue should continue to rise in the midteens year on year next quarter. Baidu remains highly confident that its generative AI model will be a long-term earnings driver, as it is seeing demand from the application side. Clients are now diversified beyond the industrial and infrastructure sectors, and there is greater demand from domestic internet platforms throughout various industries. Baidu said generative AI revenue was about CNY 1 billion this quarter, of which, CNY 322 million came from AI cloud.