BIDU's AI Revenues Climb, Profits Drop: Is It Trading Growth for Risk?

Baidu, Inc. BIDU is facing mounting financial pressure as its aggressive push into artificial intelligence drives free cash flow into negative territory at RMB 4.7 billion in the second quarter of 2025. The pressure stems from rising operating costs. Its cost of revenues climbed 12%, while the core online marketing revenues declined 15% year over year. These dynamics, combined with heavy AI infrastructure and R&D spending, have tightened margins and created short-term profitability challenges.

Despite these near-term pressures, Baidu is betting big on the future. Its AI integration is accelerating — over 64% of Baidu mobile search results featured AI-generated content by July, showing deep user adoption. Meanwhile, AI Cloud revenues climbed 27% year over year, while non-online marketing revenues jumped 34%, driven by demand for enterprise AI, the Ernie model and Apollo Go’s autonomous ride services. These trends underscore the long-term monetization potential of Baidu’s AI ecosystem.

The AI market opportunity is massive. Per the Grand View Research report, global AI spending is projected to rise at a compound annual growth rate of 35.9% through 2030, reaching $1.8 trillion. Baidu is positioning itself to capture this growth by optimizing GPU utilization, ensuring flexibility for domestic chips and strengthening its AI cloud infrastructure. A solid net cash position gives the company the runway to sustain investments while management focuses on efficiency and resource optimization.

For investors, Baidu’s heavy spending today could unlock substantial value tomorrow, provided it monetizes AI search effectively, scales cloud margins and converts next-gen innovations into consistent, high-margin revenues.

AI Capex Push Leaves BIDU Rivals Facing Similar Strains

Oracle ORCL has accelerated its AI ambitions by retooling databases and cloud services, highlighted by deploying a massive Nvidia-powered supercomputer. Yet this push is weighing heavily on finances. Oracle reported negative free cash flow of $394 million in the fourth quarter of fiscal 2025, pressured by soaring capex and energy-intensive data centers. With over $25 billion projected in fiscal 2026 investments, Oracle faces intensifying cash burn, raising concerns over sustainability as aggressive spending risks overshadowing profitability and long-term shareholder value.

Alphabet GOOGL is intensifying its AI push with $85 billion in 2025 capex, far above forecasts, straining free cash flow. Alphabet’s second-quarter 2025 free cash flow fell to $5.3 billion as data center spending surged, echoing industry-wide AI pressures. Still, Alphabet’s $95 billion cash reserve and minimal debt provide resilience, allowing it to absorb short-term strain while sustaining acquisitions and innovation, reinforcing Alphabet as a formidable AI competitor to Baidu despite mounting financial pressures.

BIDU’s Price Performance, Valuation & Estimates

Baidu’s shares have gained 28.8% in the year-to-date period, outperforming the Zacks Internet - Services industry and the Zacks Computer and Technology sector’s growth of 23.9% and 15.4%, respectively.

BIDU’s YTD Price Performance

From a valuation standpoint, BIDU’s forward 12-month price/earnings ratio is 11.97, far below the industry average of 23.13. BIDU has a Value Score of C.

BIDU’s Valuation

The Zacks Consensus Estimate for the full-year 2025 earnings is pegged at $8.32 per share, down by 3.9% over the past 30 days, indicating a 20.99% year-over-year decline.

Baidu currently carries a Zacks Rank #5 (Strong Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research