Baidu Earnings: Ongoing AI Transformation Amid Near-Term Weakness

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 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 Baidu into an AI-oriented firm.