Baidu's Q2 Revenue Slips, but AI/Cloud Business Shows Promise

Baidu's Q2 revenues declined due to lower advertising-related revenue in its core business. Despite this, the Chinese tech company was able to offset headwinds through growth in its AI/cloud business. The company is positioned to benefit from China's digital transformation and the increasing adoption of AI technology.

Baidu, Inc. (NASDAQ:BIDU) reported its second-quarter 2025 earnings, revealing a 4% year-over-year decline in total revenues to RMB 22.7 billion. Despite this overall revenue dip, the company experienced a notable 27% increase in its AI cloud services, indicating growth in this area. However, Baidu’s core advertising revenue faced challenges, dropping 15% year-over-year to RMB 16.2 billion [1].

The mixed financial results underscore Baidu's ongoing transition to AI-powered search, which has affected its online marketing performance. The company's management expressed optimism about the long-term potential for AI search monetization, despite near-term challenges [1]. The investment firm Susquehanna raised its price target on Baidu to $95.00, reflecting the company's "undemanding" valuation and the potential for rangebound share performance in the foreseeable future [1].

In addition to its AI cloud growth, Baidu's autonomous driving service Apollo Go provided 2.2 million fully driverless rides in Q2, a 148% increase year-over-year. This growth demonstrates Baidu's ability to leverage AI technology in diverse sectors, including transportation [2]. The company's AI Cloud revenue increased 27% year-over-year to RMB 6.5 billion, driven by subscription-based services and GPU usage of more than 90% for major clusters [2].

Baidu's performance highlights the company's strategic shift towards AI technologies and its potential to benefit from China's digital transformation. The Chinese government's "AI Plus" policy, released in 2025, aims to integrate AI into various sectors, including science, industry, and consumer applications. This policy could provide significant opportunities for Baidu as it continues to invest in AI-driven initiatives [3].

The company's core non-GAAP EBIT margin decreased to 17% from 26% a year earlier, reflecting the impact of AI integration. Despite these challenges, Baidu remains well-positioned to capitalize on the growing AI market in China. Analysts from Tiger Securities and Benchmark maintain Buy ratings for Baidu, with price targets of $100 and $115, respectively, acknowledging the company's ongoing revenue challenges linked to its AI search transformation [1, 2].

In conclusion, Baidu's Q2 2025 financial performance demonstrates the company's ability to navigate near-term challenges with growth in its AI/cloud business. The strategic shift towards AI technologies positions Baidu to benefit from China's digital transformation and the increasing adoption of AI technology. As the company continues to invest in AI-driven initiatives, investors should closely monitor Baidu's progress and the broader implications of China's "AI Plus" policy.

References:
[1] https://www.investing.com/news/analyst-ratings/susquehanna-raises-baidu-stock-price-target-to-95-on-ai-cloud-momentum-93CH-4219358
[2] https://finance.yahoo.com/news/baidu-bidu-stock-rated-buy-053425808.html
[3] https://www.geopolitechs.org/p/china-releases-ai-plus-policy-a-brief