TLDR
- Baidu stock fell over 12% on Tuesday after reporting Q2 revenue of 31.33 billion yuan, missing expectations
- Online advertising revenue dropped 19% year-over-year, declining for eight consecutive quarters since Q2 2024
- Morgan Stanley downgraded BIDU from Equal-Weight to Underweight, slashing its price target 38.5% to $80
- Barclays also cut its price target to $96 from $124, maintaining an Equalweight rating
- AI cloud revenue grew 50% and GPU Cloud revenue surged 283%, but not enough to offset ad weakness
Baidu stock closed around $90.87 on Tuesday, down roughly 12% after the company reported second-quarter results that disappointed Wall Street. The stock is now down over 30% year-to-date and trading near its 52-week low of $84.82.
Q2 revenue came in at 31.33 billion yuan ($4.62 billion), a 4% year-over-year decline and slightly below the expected 31.95 billion yuan. Adjusted earnings per American depositary share fell 47% to $1.06, missing the $1.38 estimate.
The biggest drag was online advertising. Revenue there dropped 19% to 13.1 billion yuan ($1.94 billion) as Chinese advertisers pulled back on spending. That marks eight straight quarters of year-over-year declines in search advertising, stretching back to Q2 2024. The rate of decline has now accelerated to around 20% year-over-year.
Baidu also chose to limit monetization of its new AI-powered search tools during the quarter, prioritizing user experience over near-term revenue. That decision weighed on results.
Morgan Stanley Pulls the Plug
Morgan Stanley analyst Gary Yu moved quickly after earnings. He downgraded BIDU from Equal-Weight to Underweight and cut the price target by 38.5%, from $130 to $80. That implies further downside of about 12% from current levels.
Yu trimmed his 2026 to 2028 core revenue forecasts by 1% to 9% and cut non-GAAP operating profit forecasts by 6% to 31%. The bank flagged weak sales and rising AI investment as the key concerns, with limited recovery expected in the second half of 2026.
Capital spending nearly doubled from the prior quarter to 11.39 billion yuan, pushing free cash flow into negative territory at 7.95 billion yuan ($1.18 billion). That level of spending puts pressure on Baidu to show that its AI push can eventually make up for what advertising is losing.
Barclays also cut its price target, moving to $96 from $124, while keeping an Equalweight rating. The firm said it does not expect the advertising revenue decline to narrow anytime soon and warned that continued AI investment will weigh on operating margins in the coming quarters.
AI Business Still Growing
The AI side of things was a brighter spot. Baidu’s AI cloud revenue grew 50% year-over-year, and GPU Cloud revenue jumped 283%. Overall AI business revenue rose 25% to 12.5 billion yuan ($1.85 billion).
Barclays noted that Baidu has lagged competitors in developing large language models and recently brought in AI talent to close that gap.
Morgan Stanley expects AI cloud infrastructure revenue to grow 66% year-over-year in coming periods, ahead of last quarter’s 50% growth rate.
Despite the AI momentum, new AI marketing tools showed little progress in Q2, remaining flat during the quarter.
Wall Street’s overall consensus on BIDU sits at Moderate Buy, according to TipRanks. Of 7 analysts tracked, 4 rate it a Buy, 2 a Hold, and 1 a Sell, with a two-month average price target of $148.86.
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