Baidu's AI Pivot: How a CFO's Track Record Could Drive Margin Triumph

Baidu's appointment of Haijian He as Chief Financial Officer on July 1, 2025, marks a strategic bet on his ability to transform the company's financial discipline to match its AI ambitions. With a proven record of driving AI revenue growth while stabilizing margins at Kingsoft Cloud, He's arrival signals a critical pivot to address Baidu's core challenges: scaling AI infrastructure efficiently, leveraging ecosystem synergies, and justifying its sky-high valuation. Here's why investors should watch closely—and why Baidu could be a buy ahead of Q3 2025 results, provided margins hold.

The He Factor: Lessons from Kingsoft Cloud

Haijian He's five-year tenure at Kingsoft Cloud (2020–2025) offers a blueprint for Baidu's AI strategy. At Kingsoft, He delivered a 228% year-over-year surge in AI-related gross billing to RMB525 million in Q1 2025, while keeping adjusted EBITDA margins stable at 16.2%. This was no accident: He optimized costs by partnering with third-party data centers to reduce infrastructure expenses, a tactic that cut Kingsoft's IDC costs by 6% annually. His focus on ecosystem-driven revenue—leveraging partnerships with Xiaomi and Kingsoft Ecosystem—also boosted enterprise cloud adoption, a model Baidu could replicate.

For Baidu, He's expertise is vital. The company's AI Cloud revenue grew 42% YoY in Q1 2025 to RMB9.4 billion, but gross margins dipped to 16.6%, reflecting rising infrastructure costs. Meanwhile, free cash flow turned negative (RMB8.9 billion) as Baidu invested in AI models like ERNIE 4.5 Turbo and autonomous driving expansions. He's task? Replicate Kingsoft's margin discipline in this higher-stakes environment.

Baidu's AI Growth: Riding the Surge, But at a Cost

Baidu's Q1 2025 results underscore both promise and peril. AI-related revenue now accounts for 40% of non-GAAP revenue, up from 38% in 2024, with autonomous driving (Apollo) contributing over 1.4 million rides. Yet, non-GAAP gross margins remain under pressure, down from 19.2% in Q4 2024. The culprit? Investments in high-margin AI infrastructure—data centers, R&D for cost-optimized models, and global robotaxi rollouts—have spiked operating expenses.

Key Challenges: Can He Tame the Costs?

1. Infrastructure Scaling: Baidu's AI Cloud requires massive compute power. He must avoid over-investing in fixed assets by adopting Kingsoft's “resource pool” model—sharing costs with partners or third-party providers—to keep capital intensity in check.
2. Ecosystem Synergies: Baidu's ties to iQIYI and Pinduoduo could create cross-selling opportunities. For example, integrating Apollo's autonomous data with Baidu Cloud could boost enterprise gross billing.
3. Valuation Pressure: Baidu trades at a 113x P/E ratio, a premium justified only if AI margins stabilize. Non-GAAP net profit rose 42% YoY in Q1 to RMB7.7 billion, but investors will demand consistency.

The Risks: Why This Isn't a Sure Bet

• Regulatory Headwinds: China's crackdown on data monopolies and AI ethics could force Baidu to divest assets or slow innovation.
• Hyperscaler Competition: Alibaba and Tencent's cloud divisions dominate with 43% combined market share, squeezing Baidu's pricing power.
• Leadership Timing: He's appointment was announced just days before his start date, raising questions about preparedness.

Investment Thesis: Buy on Margin Clarity

Baidu is a strategic buy if Q3 2025 results show:
1. Margin Stability: Gross margin holds above 16% and adjusted EBITDA improves from 26% in Q1.
2. AI Revenue Traction: Non-GAAP AI revenue hits 42% of total revenue, signaling ecosystem leverage.
3. Capital Discipline: Free cash flow turns positive or narrows, showing He's cost controls are working.

Conclusion: He's the Key to Baidu's AI Triumph

Haijian He's track record at Kingsoft proves he can grow AI revenue while managing margins—a critical skill for Baidu's high-stakes pivot. Investors should treat Q3 results as a litmus test: If margins stabilize and AI revenue accelerates, Baidu's valuation becomes defensible. But with competition and regulation looming, this is a bet on He's ability to execute under pressure. For now, patience—and a close eye on Q3—remains the wisest strategy.