Baidu Inc

Baidu Inc (NASDAQ: BIDU) is a Chinese language Internet search provider. The Company offers a Chinese language search platform on its Baidu.com Website that enables users to find information online, including Webpages, news, images, documents and multimedia files, through links provided on its website. The Company operates through two segments, Baidu Core segment and iQIYI segment.

As per our previous Kalkine’s Artificial Intelligence and Emerging Technologies Report published on ‘BIDU’ on May 22, 2025, Kalkine provided an ‘Buy’ stance on the stock at USD 105.14 based on fundamental analysis and the stock price has now moved up by ~ 41.36% since then and has breached resistance level 2.

Noted below are the details of support and resistance levels provided in our previous report:

Rationale:

·         Revenue Contraction and Marketing Weakness: Baidu reported a year-over-year revenue decline of 4% in the second quarter of 2025, primarily weighed down by a steep 15% drop in online marketing revenue. Despite efforts to accelerate the AI-driven transformation of its search business, the company continued to face near-term pressure from weaker advertising demand. This contraction in its core online marketing operations — traditionally Baidu’s profit engine — highlights persistent challenges in monetizing traffic amid evolving user behavior and intensifying competition in China’s digital advertising market.

·         Margin Compression and Profitability Strain: Operating performance weakened notably, with operating income plunging 45% year over year and operating margin narrowing to just 13% for Baidu Core. Even on a non-GAAP basis, operating profit fell 41%, reflecting elevated cost pressures from the AI Cloud business and higher content expenditures. Adjusted EBITDA margin dropped to 20%, signaling deteriorating operational efficiency. The erosion in profitability underscores the cost burden of Baidu’s aggressive AI investment cycle, which has yet to translate into proportional earnings growth.

·         Rising Costs and Negative Free Cash Flow: Total cost of revenues increased 12% year over year, largely due to higher expenditures related to AI Cloud expansion and content creation. Selling, general, and administrative expenses also rose by 5%, while free cash flow turned negative at RMB4.7 billion — a concerning reversal from prior quarters. The negative cash generation reflects Baidu’s heavy capital commitments toward developing its AI ecosystem, cloud infrastructure, and autonomous driving initiatives, straining short-term liquidity and potentially delaying returns on investment.

·         iQIYI Weakness and Dependency Risks: Baidu’s subsidiary iQIYI continued to underperform, posting an 11% year-over-year revenue decline as content costs climbed and subscriber growth plateaued. The segment’s soft performance reduced Baidu’s overall revenue diversification and amplified reliance on its AI Cloud and autonomous driving units to offset weakness elsewhere. Although Baidu’s strategic pivot toward AI leadership is clear, the company remains vulnerable to cyclical advertising headwinds and the uncertain monetization timelines of its emerging technology bets.

Valuation (Using EV/Sales Multiple)

Share Price Chart

Conclusion

Baidu’s Q2 2025 results reflected mounting financial and operational pressure, as total revenue declined 4% year over year amid a steep 15% drop in online marketing income — its traditional profit driver. Profitability deteriorated sharply, with operating income plunging 45% and margins contracting due to rising costs tied to AI Cloud expansion and content spending. Despite strong AI progress, heavy investments led to negative free cash flow. And on daily price chart, BIDU stock has charted into an overbought territory, indicating a potential pull back before next leg of rally.

Therefore based on above rationale and valuation done , a "Sell" recommendation on Baidu Inc (NASDAQ: BIDU) has been given at the current market price of USD 148.63 as on 06 October 2025 at 10:05 am PDT.

Note 1: Past performance is not a reliable indicator of future performance.

Note 2: The reference date for all price data, currency, technical indicators, support, and resistance level is 06 October 2025. The reference data in this report has been partly sourced from REFINITIV.

Note 3: Investment decisions should be made depending on an individual's appetite for upside potential, risks, holding duration, and any previous holdings. An 'Exit' from the stock can be considered if the Target Price mentioned as per the Valuation and or the technical levels provided has been achieved and is subject to the factors discussed above.

Note 4: Target Price refers to a price level which the stock is expected to reach as per the relative valuation method and/or technical analysis taking into consideration both short-term and long-term scenario.

Note 5: ‘Kalkine reports are prepared based on the stock prices captured either from the London Stock Exchange (LSE) and or REFINITIV. Typically, both sources (LSE and or REFINITIV) may reflect stock prices with a delay which could be a lag of 15-20 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice.’

Note 6: Dividend Yield may vary as per the stock price movement.