Baidu’s quarterly revenue drops 4% as AI cloud surge fails to offset advertising slump

Baidu, a leading Chinese tech company, reported a 4% year-on-year decline in revenue for the second quarter of this year, as rising advertising costs struggled to keep pace with the surge in AI cloud operations. The company's revenue for the three months ending June 30 was 31.3 billion yuan, slightly below the 31.6 billion yuan consensus estimate from analysts.

Net profit for the period was 2.3 billion yuan. Advertising revenue, which traditionally constitutes the primary source of income, fell by 19% to 13.1 billion yuan compared to the previous year, as advertisers grew more cautious due to a sluggish economic climate. Conversely, AI-related operations, encompassing cloud services, applications, and marketing services, exhibited robust growth, increasing by 25% year-on-year to 12.5 billion yuan.

The AI sector's expansion has become a critical focus for Baidu, with AI cloud revenue soaring by 50% year-on-year to 7.3 billion yuan. Applications in AI saw a 3% increase to 2.5 billion yuan, while AI marketing services remained stable at 2.6 billion yuan. Baidu's CEO, Robin Li Yanhong, highlighted in the earnings report that despite the challenges faced by online marketing, the company's AI-driven business is gaining momentum, signaling a shift from an internet-focused enterprise to an AI-first organization.

Baidu's strategic moves to capitalize on the surging demand for AI services come amidst a highly competitive landscape in China's tech sector. Major players such as ByteDance, Tencent Holdings, Moonshot AI, and DeepSeek are vying for supremacy by offering increasingly sophisticated open-weight models. To bolster their position, Baidu raised prices for certain AI computing products by 5-30%, citing increased infrastructure and hardware costs.

In addition to its AI and cloud initiatives, Baidu is also expanding its global footprint through ventures such as the robotaxi service Apollo Go, which has begun open-road testing in London in partnership with Uber and Lyft, and plans to test fully autonomous rides in Hong Kong, Switzerland, and Kazakhstan. The company announced plans to convert its secondary listing on the Hong Kong stock exchange into a dual-primary listing, a process expected to be completed later this year, to broaden its international investor base.