AI Cloud high growth supports Baidu 2Q26, but advertising weakness and increased AI spending weigh on profit recovery

Overview

This report is Goldman Sachs' earnings outlook for Baidu.com Inc. 2Q26. The report expects the company to report 2Q26 results in late August, with the core view that AI Cloud growth and margin improvement can partially offset the continuing pressure from traditional advertising weakness, but higher intensity AI model training investment in the second half will limit operating profit recovery. Goldman Sachs also states that it is Not Rated for BIDU/9888.HK due to policy or transaction-related restrictions.

Core views

Key views include: first, AI Cloud is the most important growth engine, supported by AI Cloud Infra and GPU Cloud demand, with 2Q26E AI Cloud revenue expected to grow 41% y/y and AI Cloud Infra expected to grow 58% y/y; second, no near-term inflection is seen in advertising, with 2Q26E expected to decline 21% y/y because traditional search advertising is pressured by changing user behavior from AI tools, AI search transformation has not yet broken through, and macro conditions remain challenging; third, Baidu's core operating profit trend is expected to gradually stabilize sequentially, with 2Q26E down 18% y/y, but the company is increasing model training investment to catch up with leading domestic AI model peers, and 2H26E profitability pressure is likely to rise progressively; fourth, Goldman Sachs has reduced 2026E-2028E revenue and net income forecasts.

Analysis framework

The report uses segment-level forecasting and financial model revisions, evaluating revenue trends for Baidu Core, Advertising, AI Cloud, AI Cloud Infra, iQIYI and other businesses separately, and integrates cost control, improved cloud margin dynamics, AI capex and model training investment cadence to form forecasts for revenue, operating profit, EPS, valuation multiples, and cash flow metrics.

Methodology notes

• Financial forecastingSegment revenue and profit forecasting

  Split Baidu's core revenue by business line and assess the impact of advertising deterioration, AI Cloud growth, and cost investments on operating profit.

  The report splits Baidu revenue into Baidu Core, Advertising, AI Cloud, other businesses, and iQIYI, and focuses on 2Q26E and 2026E-2028E trends in revenue, margins, EPS, and valuation metrics.

• Valuation and style factorsGS Factor Profile

  Goldman Sachs uses growth, financial return, valuation multiples, and composite factor metrics for relative stock comparison.

  The report discloses that GS Factor Profile computes percentile ranks based on forward sales growth, EBITDA growth, EPS growth, ROE, ROCE, CROCI, P/E, P/B, EV/EBITDA, and EV/FCF, used to provide investment context.

• Company action frameworkM&A Rank

  Goldman Sachs uses the M&A framework in its global coverage to assess the probability of a company being acquired.

  The report states that M&A Rank is divided into 1 to 3, representing high, medium, and low acquisition likelihood, but does not provide Baidu's specific M&A Rank or include it in target valuation.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• BIDU.US

  research target ADR

  Strengths

  AI Cloud and AI Cloud Infra growth is strong, with downstream multi-industry demand and Baidu's full-stack capabilities supporting GPU Cloud; cloud portfolio improvement is driving margin expansion.

  Weaknesses

  Traditional advertising remains under pressure, with 2Q26E expected to decline 21% yoy; AI search transformation has not yet delivered a clear breakthrough.

  Comparison

  The report states AI Cloud Infra is expected to continue outperforming peers, and GPU Cloud still has triple-digit yoy growth.

  Risks

  Increasing AI model training investment, rising GPU procurement and compute cost, weaker-than-expected advertising recovery, FX losses, and delayed group profit inflection.

• 9888.HK

  Hong Kong-listed equity of the same company

  Strengths

  Shares the same fundamentals as BIDU.US, benefiting from AI Cloud growth and Baidu's core cost control.

  Weaknesses

  Also exposed to advertising weakness, rising AI investment, and Not Rated status.

  Comparison

  The report discloses current prices for both BIDU and 9888.HK, but does not provide a target price or upside.

  Risks

  Hong Kong liquidity, valuation premium/discount, strategy and transaction-related policy constraints, and potential investment banking relationship disclosure risk.

• iQIYI

  Baidu-related business segment

  Strengths

  Still part of Baidu group revenue composition.

  Weaknesses

  The report forecasts 2026E iQIYI revenue to decline 4% y/y, below AI Cloud growth performance.

  Comparison

  Compared with AI Cloud, iQIYI is not the core growth highlight of this report.

  Risks

  Weak growth in entertainment content business and uncertain contribution to profits.

Key data

• 2Q26E Baidu Core revenueRMB252bn, -4% yoyThe report says Baidu Core revenue is declining -4% yoy to Rmb25.2bn.
• 2Q26E AI Cloud revenue growth+41% yoyGoldman Sachs expects AI Cloud revenue growth to be the main highlight of 2Q26E.
• 2Q26E AI Cloud Infra revenue growth+58% yoyThe report expects AI Cloud Infra to remain in fast growth, and GPU Cloud to still post triple-digit yoy growth.
• 2Q26E Advertising business growth-21% yoyImpacted by compression in traditional search advertising, lack of breakthrough in AI search transformation, and macro pressure.
• 2Q26E Baidu Core operating profit trend-18% yoySlightly firmer than 1Q26's -19% yoy.
• 2026E Baidu Core operating profit-3% yoyHigher AI model training investment is expected to weigh on full-year operating profit recovery.
• 2026E-2028E revenue forecast revisionreduced by 4%-6%Reasons include weaker-than-expected advertising recovery and weaker performance in other businesses.
• 2026E-2028E net income forecast revisionreduced by 5%-14%Reflects stronger AI investment and 2026E foreign exchange losses.
• Market cap and enterprise valueMarket cap $397bn; Enterprise value $369bnDisclosed in Key Data on the report cover.
• 3-month average daily turnover$3.183bnDisclosed in Key Data on the report cover.
• 2026E total revenueRMB1267.68bn, -1.8% yoyTotal revenue is 126,768.0 Rmb mn in the financial forecast table.
• 2026E EPSRMB46.88Diluted EPS for 2026E is Rmb46.88 under the new forecast basis.
• 2026E P/E16.4xThe valuation table discloses 2026E P/E at 16.4x.

Impact & implications

From an investment standpoint, the report shows Baidu is shifting from traditional search advertising-led economics to AI cloud and AI infrastructure-driven economics, but profit leverage during the transition is not released linearly. The high growth and margin improvement in AI Cloud help cushion advertising decline, but AI model training, GPU procurement, and compute capacity investment are expected to shift profit pressure into 2H26. Because Goldman Sachs is Not Rated and provides no target price, the report is more of an earnings outlook and key variable monitor rather than a clear trading recommendation.

Risks

• Traditional search advertising may continue to decline as user behavior shifts with broader AI tool adoption.
• If Baidu's AI search transformation fails to gain clear traction, the advertising inflection point may remain delayed.
• AI model training investment is expected to rise significantly in 2026, and GPU procurement and compute costs may suppress margins.
• The macro environment remains challenging and could affect advertiser budgets and consumer internet demand.
• Although AI Cloud is high growth, if GPU Cloud demand or the share of higher-margin segments falls short of expectations, cloud margin improvement may be less than expected.
• FX losses and weak performance in other businesses have already prompted downward revisions to net income forecasts.
• Goldman Sachs has disclosure relationships with Baidu as financial advisor, investment banking, shareholding, and market-making; the report is Not Rated, so potential conflict-of-interest disclosure risk should be noted.

What to watch

• Whether 2Q26 realized Baidu Core revenue is close to RMB252bn and the -4% yoy expectation.
• Whether AI Cloud revenue growth, AI Cloud Infra growth, and GPU Cloud maintain high growth.
• Whether AI Cloud margins continue to improve sequentially and whether high-margin GPU Cloud share increases.
• Whether advertising still declines about 21% yoy and whether AI search transformation shows commercial break-through.
• Management guidance on AI capex, model training spend pace, and GPU procurement plans.
• Progress on Kunlunxin spin-off, dividend policy, and updates to dual-main listings.
• Profit inflection at the group level, free cash flow, and capital allocation plans.