Baidu's stock slid more than 5% in premarket trading on Tuesday after the Chinese search and AI company reported second-quarter earnings and revenue that fell short of analyst expectations. The results underscore the ongoing pressure on its traditional advertising business, even as its AI cloud segment continues to expand rapidly.
Q2 financials miss estimates
Baidu reported earnings per share of RMB7.22, well below the consensus estimate of RMB9.84. Revenue came in at CN¥31.3 billion (approximately $4.5 billion), down 4% year over year and below the expected CN¥31.9 billion (around $4.6 billion). Net income dropped to CN¥2.3 billion (about $333 million), while adjusted operating income was CN¥3.8 billion (roughly $550.3 million), representing a 12% adjusted operating margin. Adjusted EBITDA reached CN¥6.2 billion (about $897.8 million), a 20% margin.
This marks the fifth consecutive quarter of year-over-year revenue decline, as weakness in online marketing continues to offset the strong growth in Baidu's AI-related businesses.
AI cloud accelerates, but ad business struggles
Baidu's AI Cloud Infrastructure segment remained a bright spot, with revenue jumping 50% year over year to CN¥7.3 billion (about $1.1 billion). Within that segment, GPU Cloud revenue surged 283%, accelerating from 184% growth in the prior quarter. AI Applications revenue rose 3% to CN¥2.5 billion (around $362 million), while AI-native marketing services revenue was roughly flat at CN¥2.6 billion (about $376.5 million).
CEO Robin Li emphasized the company's transition, stating, "With AI-powered Business now firmly established as the core of Baidu, we are strengthening the foundations for our next phase of AI-driven growth. AI Cloud Infra sustained strong momentum this quarter, with GPU Cloud growth accelerating further off an already high base." He added that while online marketing remains under pressure, the momentum in core AI businesses reaffirms Baidu's shift from an internet-centric to an AI-first company.
Baidu has restructured its reporting since the December quarter to separately disclose AI cloud, applications, and marketing. In the March quarter, AI-powered business accounted for more than half of core sales for the first time.
Advertising headwinds and competitive landscape
Baidu's traditional search and advertising operations continue to face challenges as it competes for user attention with social media platforms and a growing number of AI chatbot services. The company's Ernie AI model also faces competition from open-weight models developed by Chinese rivals like Moonshot AI. Li is betting that the next phase of AI will center on AI agents and applications, potentially driving new demand for Baidu's cloud infrastructure.
Beyond software, Baidu is expanding into autonomous driving and hardware. Its robotaxi service is scaling in China and overseas, and the company plans to spin off its Kunlunxin chip unit through a dual listing in Shanghai and Hong Kong. However, robotaxi operations have faced regulatory scrutiny. A fleet outage in Wuhan in April triggered an industry-wide safety review, leading to a three-month freeze on new robotaxi permits. Permits have since resumed, and Baidu's Wuhan operations are gradually restarting, according to local social media reports.
For investors, the key question remains whether AI-related revenue can grow fast enough to offset the continued contraction in Baidu's traditional business. The company's ability to navigate regulatory and competitive pressures will be crucial to its long-term outlook. As Hong Kong's Hang Seng index shows a bullish flag ahead of major earnings, Baidu's results highlight the mixed picture for Chinese tech giants. Meanwhile, broader market sentiment has been buoyed by strong earnings lifting the S&P 500 to record highs, but Baidu's struggles suggest that not all tech names are benefiting equally.
This article is for informational purposes only and does not constitute financial advice.
