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Investing.com - Benchmark lowered its price target on Baidu (NASDAQ:BIDU) to $115.00 from $120.00 on Thursday, while maintaining a Buy rating on the Chinese tech company. According to InvestingPro analysis, Baidu appears undervalued, trading at a P/E ratio of 8.5x and price-to-book of 0.79x.
The price target reduction comes as Baidu faces significant headwinds in its core advertising business, which saw revenue decline 15% year-over-year in the second quarter of 2025, with GenAI search monetization still in early stages. The company maintains a strong financial position with a current ratio of 2.29 and an Altman Z-Score of 7.04, indicating robust financial health.
Despite advertising challenges, Baidu’s non-advertising revenue continues to gain traction, now representing approximately 40% of Baidu Core. This growth is primarily driven by AI Cloud, which expanded 34% year-over-year in the first half of 2025, alongside a strategic shift toward subscription-based revenue models.
The company’s autonomous driving service, Apollo Go, is showing strong performance with fully driverless rides increasing 148% year-over-year. Global expansion efforts are accelerating through partnerships with Uber (NYSE:UBER) and Lyft (NASDAQ:LYFT).
Benchmark noted that while the combination of soft advertising trends and continued AI investments may pressure margins in the near term, management’s focus on cost efficiency should help mitigate these impacts as Baidu transitions toward a more diversified, innovation-led business model.
In other recent news, Baidu reported its earnings for the second quarter of 2025, revealing a 4% year-over-year decline in total revenue, which amounted to RMB 22.7 billion. Despite this decrease, the company experienced a notable 27% increase in AI cloud revenue, underscoring growth in this area. Baidu Core revenue fell by 2% year-over-year to RMB 26.3 billion, with a significant 15% drop in core advertising revenue, which reached RMB 16.2 billion. The company’s Core non-GAAP EBIT margin also declined to 17% from 26% in the previous year. Tiger Securities analyst Bo Pei maintained a Buy rating on Baidu, with a price target of $100, despite the ongoing revenue challenges stemming from the company’s AI search transformation. The expansion of AI-generated content was marked, with over 50% of search result pages featuring such content by the end of June, increasing to 64% in July. These developments highlight the company’s strategic focus on AI, even as it navigates revenue challenges.
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