This article first appeared on GuruFocus.
Baidu (NASDAQ:BIDU) is entering 2025 under pressure, after reporting a third consecutive quarterly revenue decline that underscores how challenging its pivot toward AI could be. For the December quarter, revenue slipped 4% year over year to 32.74 billion yuan, modestly above the 32.66 billion yuan analysts had projected on average. Adjusted operating profit fell 41% to 2.97 billion yuan, though that still exceeded the 2.66 billion yuan consensus estimate. Even so, the market reaction was cautious, with Baidu’s American Depository Receipts down 3.2% in pre-market trading, suggesting investors remain concerned about the durability of its core advertising engine and the monetization timeline for AI.
Management continues to reposition Baidu from a search-led advertising platform into what it hopes will become an AI-first ecosystem, embedding large language models across products such as search and maps, in a way that mirrors Alphabet’s Google integrating Gemini across its services. While Baidu was among the first in China to introduce a ChatGPT-style chatbot, it has since faced intensifying competition from Alibaba Group Holding Ltd. and newer entrants like DeepSeek. Its latest model, Ernie 5.0 Thinking, unveiled in November, earned an above-average rating from benchmarking site Artificial Analysis, yet trailed a broad group of Chinese open-source alternatives. To stimulate adoption, Baidu participated in a $700 million industry-wide holiday cash giveaway, committing 500 million yuan, although that outlay was smaller than spending by Alibaba and Tencent Holdings Ltd. (TCEHY) Still, the company said monthly active users of its AI assistant within the search app increased fourfold year over year as of Feb. 10, an early signal that engagement could be building.
From a financial standpoint, Bloomberg Intelligence analysts Robert Lea and Jasmine Lyu estimate Baidu’s AI ventures may remain loss-making for at least the next three years, and a potential spinoff and Hong Kong IPO of its Kunlunxin chip unit is not expected to affect near-term earnings. The AI cycle has nonetheless supported stronger growth in the cloud segment and boosted investor interest in Kunlunxin, which has hired banks for a Hong Kong listing as demand grows for domestic chip alternatives amid geopolitical tensions. Baidu is also considering upgrading its Hong Kong listing to primary status to hedge against unfavorable US policies. Beyond AI, the company is expanding robotaxi operations into the Middle East, Europe and South Korea, moves that could potentially generate profits sooner than generative AI. To reinforce shareholder returns, Baidu recently announced its first dividend alongside a $5 billion, three-year share buyback program, steps that may offer some support as investors weigh the risks and opportunities embedded in its ongoing transition.
