Baidu recently released its Q1 2025 earnings, triggering a notable response from the market. Shares dropped more than 3% in early Hong Kong trading, hitting a one-month low despite moderate growth in revenue. The market’s reaction reflects concerns about mounting pressure on profitability.
For the quarter, Baidu reported revenue of RMB 32.5 billion, up 3% year-over-year and in line with expectations. Core business revenue rose 7% to RMB 25.5 billion, with intelligent cloud services standing out—surging 42% from a year ago and increasing its share of core business from 20% to 26%. Meanwhile, Baidu’s generative AI business posted triple-digit growth, a sign that its AI technology is beginning to gain commercial traction.
However, traditional online advertising revenue slipped 6% year-over-year to RMB 16 billion, as advertisers cut marketing budgets amid cautious economic sentiment. On a more positive note, non-advertising revenue rose 40%, largely driven by the rapid expansion of Baidu’s cloud and autonomous driving projects, partially offsetting the decline in ads.
Adjusted net profit came in at RMB 6.5 billion—an 8% drop from last year—as R&D expenses jumped 12% to RMB 7.2 billion. The company is doubling down on its AI efforts, with CFO Rong Luo reaffirming AI as Baidu’s strategic focus for long-term growth.
Analyst reactions were mixed. Nomura maintained a “Neutral” rating, citing slightly softer-than-expected guidance for Q2. Jefferies reiterated a “Buy” rating but trimmed its price target from $128 to $120. Interestingly, despite pressure in the Hong Kong market, Baidu’s U.S.-listed ADRs were up around 2.4% in premarket trading—suggesting foreign investors remain cautiously optimistic about the company’s AI pivot.
Baidu’s autonomous ride-hailing arm, Apollo Go, continues to show progress. The service completed over 1.4 million rides in Q1, up 75% year-over-year, with cumulative rides now surpassing 11 million. The company also announced a new partnership with CAR Inc. to advance autonomous driving in the car-sharing space. CEO Robin Li noted this marks a shift from pilot testing to commercialization of its self-driving tech.
In response to rising U.S.-China tech tensions and export restrictions on semiconductors, Baidu emphasized its preparedness. Shen Dou, President of Baidu’s Intelligent Cloud, stated that the company has developed a flexible domestic chip substitution mechanism tailored to different use scenarios. The Intelligent Cloud division currently operates with a profit margin between 10% and 19%, and Baidu expects future margins to improve as more high-value AI services are rolled out.
While the stock faces short-term headwinds, some long-term investors are still hopeful. Goldman Sachs believes Baidu’s massive mobile ecosystem—boasting 724 million monthly active users—offers significant potential for AI monetization. CLSA predicts the company’s Wenxin AI model could help drive annual growth of over 30% in cloud revenue for the next three years.
That said, risks remain. Bank of America cautions that heavy R&D spending and intensifying AI competition could pressure profitability. Ongoing U.S.-China tensions add another layer of regulatory uncertainty. Baidu is currently trading at around 14x earnings, a notable discount compared to U.S. peers—possibly signaling that the market has yet to fully price in its long-term potential.
The Hang Seng Index slipped 0.6% in the morning session, with most tech names underperforming. Analysts suggest Baidu’s stock is not only weighed down by earnings concerns but also broader geopolitical tensions and an uncertain trade outlook. As the market shifts focus to upcoming high-level U.S.-China talks, Chinese ADRs may experience further volatility. Investors would be wise to weigh fundamentals alongside geopolitical risks when positioning in this space.
