Baidu's recent earnings report revealed a significant decline in its core advertising business, which fell 18.5% year over year. This prompted Morgan Stanley analyst Gary Yu to downgrade the stock from equal-weight to underweight and reduce the price target from $130 to $80, suggesting a 12% downside from the stock's recent close.
Despite expectations for growth in AI cloud infrastructure revenue, the overall financial performance was disappointing, with earnings per share at 7.22 yuan (US$1.07), missing analyst expectations of 9.35 yuan (US$1.38). Revenue also fell short at 31.33 billion yuan (US$4.64 billion) compared to the consensus estimate of 31.78 billion yuan (US$4.71 billion).
Yu indicated that while Baidu's investments in AI could eventually yield positive results, meaningful financial growth is not expected in the near term, especially as the recovery in advertising remains sluggish.
This outlook contrasts sharply with the broader consensus on Wall Street, where 27 out of 32 analysts maintain a buy or strong buy rating on Baidu, despite the stock's approximately 30% decline year to date