Company Coverage
Baidu Inc (9888 HK) 2Q26 Results Preview: AI Cloud Growth Offset by Advertising Weakness; Strategic Catalysts In Focus
BUY (Maintained)
Current price:
Target price:
Upside:
Previous TP :
HK$106.20
HK$186.00
+75.1%
HK$178.00
Analyst
Highlights
- Baidu is expected to report 2Q26 results in mid- to late-August. We expect Baidu Core revenue to decline 1% yoy, with a 44% AI Cloud growth offset by a 16% advertising decline, while core operating profit should decline 21% yoy. Key events to look out for include higher 2H26 AI investment, the Apple partnership, Kunlunxin spin-off, and a dual-primary listing.
- Maintain BUY with a higher target price of HK$186.00 (US$190.00).
Analysis
- AI Cloud to sustain solid growth and margin improvement. We expect AI Cloud revenue to grow 44% yoy in 2Q26, supported by a 60% increase in AI Cloud Infrastructure revenue. Within the segment, GPU Cloud is expected to maintain triple-digit yoy growth, driven by strong demand across industries and Baidu’s full-stack capabilities spanning chips, cloud infrastructure and foundation models. Profitability should continue to improve sequentially, supported by a higher revenue contribution from higher-margin GPU Cloud services and improving profitability in legacy project-based businesses.
- Core profitability to stabilise, but higher AI investment may constrain 2H26 recovery. Baidu Core operating profit is expected to decline by 21% yoy in 2Q26, with higher contribution from the lower-margin cloud business. In addition, the planned ramp-up in model training, GPU procurement and computing resources are likely to place greater pressure on earnings in 2H26. We expect Baidu Core operating profit to decline 3% yoy in 2026, supported by improving cloud margins and continued cost discipline.
Advertising weakness to persist amid structural pressure on traditional search. Advertising revenue is expected to decline 16% yoy in 2Q26, reflecting changing user behaviour following the broader adoption of AI tools, limited monetisation progress from Baidu’s AI-search transition and a challenging macro environment. However, advertising is expected to account for less than 50% of Baidu Core revenue in 2026, with its impact on overall revenue growth gradually moderating as the contribution from AI Cloud increases.
Highlights
- Baidu is expected to report 2Q26 results in mid- to late-August. We expect Baidu Core revenue to decline 1% yoy, with a 44% AI Cloud growth offset by a 16% advertising decline, while core operating profit should decline 21% yoy. Key events to look out for include higher 2H26 AI investment, the Apple partnership, Kunlunxin spin-off, and a dual-primary listing.
- Maintain BUY with a higher target price of HK$186.00 (US$190.00).
Analysis
- AI Cloud to sustain solid growth and margin improvement. We expect AI Cloud revenue to grow 44% yoy in 2Q26, supported by a 60% increase in AI Cloud Infrastructure revenue. Within the segment, GPU Cloud is expected to maintain triple-digit yoy growth, driven by strong demand across industries and Baidu’s full-stack capabilities spanning chips, cloud infrastructure and foundation models. Profitability should continue to improve sequentially, supported by a higher revenue contribution from higher-margin GPU Cloud services and improving profitability in legacy project-based businesses.
- Core profitability to stabilise, but higher AI investment may constrain 2H26 recovery. Baidu Core operating profit is expected to decline by 21% yoy in 2Q26, with higher contribution from the lower-margin cloud business. In addition, the planned ramp-up in model training, GPU procurement and computing resources are likely to place greater pressure on earnings in 2H26. We expect Baidu Core operating profit to decline 3% yoy in 2026, supported by improving cloud margins and continued cost discipline.
Advertising weakness to persist amid structural pressure on traditional search. Advertising revenue is expected to decline 16% yoy in 2Q26, reflecting changing user behaviour following the broader adoption of AI tools, limited monetisation progress from Baidu’s AI-search transition and a challenging macro environment. However, advertising is expected to account for less than 50% of Baidu Core revenue in 2026, with its impact on overall revenue growth gradually moderating as the contribution from AI Cloud increases.
BUY (Maintained)
Current price:
Target price:
Upside:
Previous TP :
HK$106.20
HK$186.00
+75.1%
HK$178.00
Analyst
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