BIDU Rebounds After Q2 Selloff: Morgan Stanley Downgrades Stock, Sees More Earnings Pressure From AI Spending

• Baidu reported Q2 results on Tuesday, following which the stock declined nearly 13%.
• Morgan Stanley turns bearish as advertising weakness and rising AI investments pressure earnings.
• Retail sentiment on Stocktwits for BIDU was ‘extremely bullish.’

Baidu shares gained modestly on Wednesday after a sharp slide following its tepid second-quarter earnings report, prompting a downgrade from Morgan Stanley, which said earnings and stock pressure would continue.

The investment bank slashed its rating on BIDU to ‘Underweight’ from ‘Equal-weight’ and cut the price target to $80 from $130, citing the company’s weak advertising revenue and rising investment in AI. The fresh target implies a 14% decline.

“We expect the earnings drag from heightened AI investments to continue in the near term,” analysts Gary Yu said.

The brokerage forecasted Baidu’s AI cloud infrastructure revenue to jump 66% in the third quarter, up from 50% growth in the previous quarter. Advertising revenue, meanwhile, is expected to drop 18.5%, with little indication of a near-term recovery.

Shares fell nearly 13% on Tuesday, following the report. They gained 2.2% on Wednesday.

Baidu Q2 Recap: AI Sales Grows, But At A Cost 

The Chinese tech company posted a 4% decline in second quarter revenue, a larger drop than market expectations. A prolonged downturn in China's property sector and weak consumer spending have led businesses to cut marketing budgets, weighing on advertising demand and pressuring Baidu's online marketing business.

Baidu's online marketing services ​revenue declined 19% to 13.1 billion ​yuan in Q2. The bright spot remained its AI-linked businesses, as corporate adoption of AI drove demand ​for Baidu's cloud infrastructure. Revenue from its Core AI-powered business, which ​includes cloud ⁠computing and AI applications, rose 25% to 12.5 billion yuan.

Net income for the quarter was ​2.3 billion yuan, down from 7.3 billion a year earlier.

Baidu has been increasing its spending on AI infrastructure and personnel, which analysts say could continue to pressure margins ⁠even ​as AI-related revenue grows. 

CRO Robin Li defended the AI investment. "In a market like this, ​we believe long-term competitiveness ultimately comes down to sustained technology investment, application-driven approach, ​and patience," Li said on the company’s analyst call.

BIDU Investors Hunt For Bargain

Baidu’s weak stock performance remains a key talking point among investors. While the company remains one of China’s largest internet players, its business has struggled amid persistent macroeconomic pressures. 

Investors are weighing what price would make Baidu stock attractive, while looking for signs of a broader recovery in China’s economy and internet sector. Baidu’s sales grew a mere 1.2% in 2025, after declining 3.8% in the previous year, while the stock is down 44% from its peak in January this year.

Retail View On BIDU

On Stocktwits, the retail sentiment for BIDU was remained ‘extremely bullish’ since the company’s earnings report.

“$BIDU now trades at cash value with the $50B AI chip business for free,” said a trader. 

Another trader wrote: “$BIDU Bidu is priced below cash on the balance sheet! If you buy them and close all businesses, you make 11 billion dollars.”

Year to date, BIDU shares is down 29%.

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