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

Chinese technology firm Baidu reported a 4% year-on-year decline in second-quarter revenue on Tuesday, as a slump in advertising outpaced the growth in its artificial intelligence (AI) cloud operations, signaling escalating competition within China's tech landscape. The company's revenue for the three months ending June stood at 31.3 billion yuan (approximately US$4.62 billion), slightly falling short of the 31.6 billion yuan consensus estimate from analysts. Net profit for the quarter amounted to 2.3 billion yuan.

Online marketing revenue, Baidu's traditional core, dropped 19% to 13.1 billion yuan compared to the previous year, as advertisers exhibited caution due to a sluggish macroeconomic climate. However, revenue from AI-related endeavors, encompassing AI cloud, applications, and marketing services, surged 25% year on year to 12.5 billion yuan.

This surge underscores Baidu's rapid revenue transition: in the first quarter, AI-powered operations accounted for over half of its overall business revenue for the first time. AI cloud revenue increased by 50% year on year to 7.3 billion yuan during the second quarter, while AI applications rose by 3% to 2.5 billion yuan, with AI marketing services remaining unchanged at 2.6 billion yuan.

Baidu's founder and CEO, Robin Li Yanhong, expressed satisfaction with the earnings statement, stating, "While our online marketing business continues to face challenges, the growing momentum in our core AI-powered business reaffirms Baidu's transition from an internet-centric company to an AI-first company."

Baidu's Hong Kong-listed shares concluded up 0.8% at HK$101.10 ahead of the earnings announcement on Tuesday. Conversely, its American Depositary Shares fell by 5% following the earnings disappointment. The Beijing-based company's AI expansion unfolds amidst a fierce race among domestic rivals, with tech giants and specialists such as ByteDance, Tencent Holdings, Moonshot AI, and DeepSeek vying aggressively for users and developers through increasingly sophisticated open-weight models.

Analysts had anticipated Baidu's capacity to offer comprehensive AI services, encompassing AI chips from its Kunlunxin chip unit, intelligent cloud platform, Ernie AI model series, and a range of agents, to fortify the firm's competitive standing in China's AI sector. To capitalize on the burgeoning demand, Baidu raised prices for specific AI computing products by 5% to 30% starting in April, citing higher infrastructure and core hardware expenses.

Beyond core AI and cloud services, Baidu emphasized the global expansion of its robotaxi service, Apollo Go, which commenced open-road testing in London via partnerships with US ride-hailing titans Uber and Lyft. The company also secured a permit to test fully driverless rides in Hong Kong, along with trials in Switzerland and a memorandum signed with Kazakhstan's Turlov Private Holding to explore autonomous ride-hailing services in the Central Asian nation.

Furthermore, Baidu announced plans in July to voluntarily convert its secondary listing on the Hong Kong stock exchange into a dual-primary listing, a process expected to be finalized later in the year.