Baidu's AI Cloud Momentum: Can It Offset iQIYI's Decline and Sustain Long-Term Growth?

Baidu's strategic pivot toward artificial intelligence (AI) has positioned its AI Cloud business as a critical growth engine, even as its content division, iQIYI, faces mounting financial headwinds. For investors, the question remains: Can Baidu's AI Cloud growth sufficiently offset the declining contributions from iQIYI to justify long-term confidence in the company's trajectory?

iQIYI's Financial Drag: A Closer Look

iQIYI, once a cornerstone of Baidu's revenue, has seen its financial performance deteriorate sharply in recent quarters. In Q2 2025, the streaming platform reported a 11% year-over-year revenue decline to RMB6.6 billion ($926 million) and a stark drop in profitability. Non-GAAP operating income fell to RMB58.7 million (US$8.2 million), a 90% decline from RMB501.4 million in Q2 2024, while the company posted an operating loss of RMB46.2 million (US$6.4 million)-a reversal from an operating income of RMB342.1 million in the prior-year period according to financial results. These figures underscore a challenging operating environment, driven by a lighter content slate and reduced advertising revenue.

The decline is not isolated to Q2 2025. Since 2023, iQIYI's contribution to Baidu's total revenue has waned. In 2023, iQIYI accounted for 23.7% of Baidu's RMB134.6 billion ($18.96 billion) revenue, but by Q2 2025, its RMB6.6 billion revenue represented a smaller portion of Baidu's overall RMB32.7 billion ($4.57 billion) quarterly revenue, which itself marked a 4% year-over-year decline.

Baidu AI Cloud's Growth: A Strategic Counterbalance

Baidu's AI Cloud business has emerged as a bright spot amid these challenges. In Q2 2025, non-online marketing revenue-primarily driven by AI Cloud-surpassed RMB10 billion for the first time, reflecting a 34% year-over-year growth. This segment's expansion is fueled by Baidu's full-stack AI capabilities, including the ERNIE 4.5 series of foundation models and the Qianfan MaaS platform according to Q2 2025 results.

The AI Cloud's contribution to Baidu Core's adjusted EBITDA was equally notable. Baidu Core reported an adjusted EBITDA of RMB6.4 billion ($893 million) in Q2 2025, with a 24% margin. While the AI Cloud's exact EBITDA contribution remains unspecified, its role in driving non-online marketing revenue growth suggests it is a key pillar of Baidu's profitability. Analysts project this momentum to continue, with AI Cloud revenue expected to grow 20% year-on-year in Q3 2025 according to Seeking Alpha.

Can AI Cloud Fully Offset iQIYI's Decline?

Despite the AI Cloud's robust growth, Baidu's overall financial performance in Q2 2025 reveals limitations in its ability to fully offset iQIYI's decline. Total adjusted EBITDA for the quarter was RMB6.5 billion ($906 million), with a 20% margin-a 29% year-over-year decline. This suggests that while the AI Cloud is a significant contributor, other segments, particularly online marketing (which fell 15% year-on-year to RMB16.2 billion $2.27 billion), continue to drag on profitability.

Moreover, Baidu's strategic investments in AI and autonomous driving, while promising for long-term value creation, come with short-term costs. Increased expenditures on content and AI initiatives have strained margins, with Baidu Core's adjusted EBITDA declining 26% year-on-year according to Q2 2025 results. For the AI Cloud to fully offset iQIYI's drag, it would need to not only sustain its current growth rate but also expand into new revenue streams or achieve higher EBITDA margins-a challenge given the competitive AI landscape.

Long-Term Investment Implications

Baidu's AI Cloud represents a compelling long-term opportunity, particularly as global demand for AI infrastructure accelerates. However, investors must weigh this against near-term financial pressures. The company's focus on AI-driven transformations-spanning its mobile ecosystem, autonomous driving, and enterprise solutions-positions it to capitalize on future trends. Yet, the current decline in iQIYI's profitability and the broader Baidu Core revenue contraction highlight the risks of overreliance on unproven AI monetization strategies.

For now, the AI Cloud's growth appears insufficient to fully offset iQIYI's decline. While it provides a buffer against further deterioration, Baidu's ability to sustain long-term investor confidence will depend on its capacity to balance strategic investments with operational efficiency-and to demonstrate that its AI initiatives can scale into profitable, self-sustaining businesses.