For the first time in its history, more than half of Baidu’s core revenue comes from artificial intelligence. Investors responded by knocking roughly 13% off the company’s market value in a single session.
That contradiction sat at the center of the second-quarter results Baidu reported Tuesday. Total revenue came in at RMB 31.3 billion ($4.62 billion), down 4% year over year and 2% sequentially, missing the roughly $4.65 billion analysts had penciled in. Adjusted earnings of RMB 7.22 ($1.06) per American depositary share landed well short of the $1.35 consensus. Net income attributable to Baidu fell to RMB 2.3 billion, a 68% collapse from RMB 7.3 billion a year earlier, though most of that gap came from the absence of a large fair-value investment gain that had flattered the 2025 quarter. BIDU shares, which closed the prior day at $104.12, sank as low as roughly $90.
The culprit is the business that built the company. Online Marketing Services revenue fell 19% year over year to RMB 13.1 billion, dropping to 52% of Baidu General Business revenue from 62% a year ago. Baidu’s legacy business — the traditional search-and-display machine — shrank from RMB 13.6 billion to RMB 10.4 billion, a decline of 23%.
Set that against the growth column and the quarter’s arithmetic becomes brutally simple. Baidu Core AI-powered Business revenue rose 25% to RMB 12.5 billion, adding about RMB 2.5 billion year over year. The legacy business shed RMB 3.2 billion over the same span. The new engine is running hard. It is still not running hard enough.
The AI side is not the problem
Inside the AI column, the numbers are genuinely striking. AI Cloud Infra revenue reached RMB 7.3 billion, up 50%, and within it GPU Cloud revenue grew 283% year over year — a fourth consecutive quarter of triple-digit growth, and an acceleration from 184% in the first quarter.
“GPU cloud revenue nearly quadrupled year over year, growing 283% and accelerating significantly from an already strong 184% growth rate last quarter,” Robin Li, Baidu co-founder and chief executive, told analysts on the earnings call.
Dou Shen, executive vice president of Baidu AI Cloud Group, argued the surge is not the artifact of one whale customer. “Demand is also broadening across industries and use cases, including internet, gaming, employed AI, autonomous driving, smartphones, financial services,” Shen said. Revenue from external customers’ token usage on the Qianfan model-as-a-service platform grew more than ninefold; embodied AI revenue grew roughly sixfold.
The softer spot in the AI column is the one closest to consumers. Revenue from AI Applications was RMB 2.5 billion, up just 3% year over year and flat sequentially — a reminder that shipping AI features into Baidu Wenku, Baidu Drive and the new enterprise edition of the DuMate agent has not yet translated into meaningful pricing power. AI-native marketing services were flat at RMB 2.6 billion.
Apollo Go, the robotaxi unit, delivered roughly one million fully driverless rides in the quarter, pushing cumulative rides above 23 million across 28 cities and more than 350 million autonomous kilometers. The quarter’s expansion was almost entirely international: open-road testing in London with Uber and Lyft, fully driverless commercial operations in Dubai, Switzerland testing with PostBus, a memorandum of understanding in Kazakhstan, and Hong Kong’s first fully driverless testing permits — the first such approvals anywhere in a right-hand-drive, left-hand-traffic market.
Why it matters
Baidu is running an experiment that every incumbent search company is quietly watching, and it is running it with the least margin for error.
The distinguishing feature of this quarter is that a meaningful chunk of the advertising decline is self-inflicted. Julius Rong Luo, executive vice president of Baidu’s Mobile Ecosystem Group, told analysts the company is “deliberately holding back on monetizing the AI search” to get the product right first, and warned plainly: “we expect our advertising business to remain under pressure in the second half.”
That is a defensible strategy and an expensive one. ERNIE Assistant daily active users grew 83% year over year in June and daily conversation rounds more than tripled, but none of that engagement is being converted into revenue yet. Alphabet faces a structurally similar problem — generative answers eroding the ten-blue-links ad unit — with the crucial difference that Google’s ad base is growing while it experiments. Baidu’s is falling 19%.
Meanwhile the cost of staying in the AI race is showing up in the cash flow statement. Capital expenditure jumped to RMB 11.4 billion from RMB 5.9 billion in the first quarter, pushing free cash flow to negative RMB 7.95 billion. Operating cash flow stayed positive at RMB 3.4 billion — the fourth straight quarter, a point CFO Haijian He was keen to make — but the gap between the two is the price of GPU buildout.
“Going forward, we remain firmly committed to investing in AI as the core driver of Baidu’s long-term growth,” He said in the release. Li was blunter about where that leaves the company: “While our online marketing business remains under pressure, the growing momentum in our core AI-powered Business reaffirms Baidu’s transition from an internet-centric company to an AI-first company.”
What to watch
Three dates matter. Baidu holds an extraordinary general meeting on August 26 to approve its conversion to a dual-primary Hong Kong listing, expected to take effect this year and to open the door to Stock Connect inclusion — a potentially significant new source of mainland demand for a stock that just lost a tenth of its value. The listing process for Kunlunxin, Baidu’s AI chip unit, is advancing without public milestones. And in November, third-quarter results will test whether GPU Cloud can keep triple-digit growth against a much harder comparison while advertising, by management’s own guidance, stays weak.
The crossover Baidu wants — AI revenue growing faster in absolute yuan than legacy revenue shrinks — did not happen this quarter. Until it does, every strong AI datapoint arrives attached to a declining top line.
“While our online marketing business remains under pressure, the growing momentum in our core AI-powered Business reaffirms Baidu's transition from an internet-centric company to an AI-first company.”— Robin Li, Co-founder and CEO, Baidu