Baidu's AI Bet Is Growing Fast but the Old Cash Cow Is Dying — Can One Outrun the Other?

Shares of Baidu slid to $125.76 in pre-market trading Thursday, extending a punishing 16% drop from $150.50 on May 13. The selloff deepened despite Q1 results that beat on earnings and a bullish Goldman Sachs note — a signal that Wall Street isn't buying management's transition story at this price. For shareholders, the question is stark: can a surging AI business replace the advertising revenue that's collapsing underneath it?

• The Ad Business Is Shrinking at an Alarming Pace

Online marketing services revenue fell 22% year over year and 17% quarter over quarter to RMB 12.6 billion. This is Baidu's legacy search-advertising engine — the business that still pays most of the bills. Legacy business revenue overall declined 29% year over year to RMB 10.2 billion. That pace of decay is faster than many expected and leaves less cash flow to fund the AI buildout.

• AI Revenue Is Booming but Hasn't Plugged the Gap

Baidu's core AI-powered business revenue reached RMB 13.6 billion, rising 49% year over year, and accounted for 52% of Baidu General Business revenue.

AI cloud infrastructure contributed RMB 8.8 billion, up 79%, while GPU cloud revenue — essentially renting out high-powered chips to other companies — surged 184% year over year. Impressive, but total sales still slipped to 32.1 billion yuan, extending revenue declines into a fourth consecutive quarter.

• Profits Beat Expectations but Remain Under Pressure

Baidu reported earnings of $11.90 per share, beating estimates of $11.80 by $0.10. However, non-GAAP operating profit (earnings before certain accounting adjustments) fell 29% year on year due to the search business decline, even as it grew 28% sequentially.

Operating cash flow was just RMB 2.7 billion ($387 million) — thin for a company with a $44.6 billion market cap funding massive infrastructure spending.

• Wall Street Sees Upside but Investors Aren't Waiting

Six analysts have offered price targets with a median of $170.50 — roughly 35% above today's price. Yet strong AI cloud growth was offset by continued weakness in the legacy advertising line and ongoing investment that weighs on near-term margins. The market is pricing in a real risk: that Baidu's old business erodes faster than AI revenue can compensate, squeezing profits in the interim. Until that crossover is clearly profitable — not just growing — the stock faces headwinds.