Nomura Maintains Buy Rating for Baidu, Raises Target Price to $190

Overview

Nomura Securities released a research report maintaining a 'Buy' rating for Baidu (BIDU.US) and raising the target price from $186 to $190. The report notes that despite continued weakness in the traditional online marketing business, Baidu's strong growth in AI cloud infrastructure has effectively offset this negative impact. The key focus is on its chip subsidiary Kunlunxin (KLX), which is expected to complete its IPO by August 2026, unlocking significant value and prompting Baidu to announce its first cash dividend by year-end.

Core views

Performance shows significant divergence: In Q1 2026, Baidu General Business (BGB) revenue reached RMB 26 billion, up 2.1% YoY, exceeding market consensus by 4%. Online marketing services revenue was RMB 12.6 billion, down 21.3% YoY, becoming the primary drag; however, AI Cloud Infrastructure revenue surged 79% to RMB 8.8 billion, with GPU cloud revenue expanding 184% YoY, strongly supporting overall performance. Although non-GAAP operating profit fell 19% YoY to RMB 4 billion, it still exceeded market expectations by 20%. AI transformation accelerates: Baidu's core AI-driven business reached RMB 13.6 billion in 1Q26, up 49% YoY, accounting for 52% of BGB's total revenue. This transformation is primarily driven by AI Cloud Infrastructure, supported by the technology of unlisted chip subsidiary Kunlunxin (KLX). Nomura expects KLX's IPO to be completed by August 2026. Valuation and shareholder returns improve: Nomura raised KLX's valuation from $35 billion to $44 billion, equivalent to 40% of comparable company Cambricon's latest market cap ($111 billion), implying a 19x P/S ratio for FY2027. Based on this, Nomura used a sum-of-the-parts (SOTP) approach to raise Baidu's target price to $190. Additionally, management hinted that the 2026 cash dividend may be announced after KLX's IPO, by year-end, with initial payouts being conservative to retain room for future increases, and to be distributed in cash rather than KLX shares.

Analysis framework

Nomura values Baidu using a sum-of-the-parts (SOTP) approach, breaking the business into core advertising and new business segments. For the core advertising business, lower P/E multiples are applied to reflect slowing growth; for new businesses (including cloud, chips, SaaS, and Robotaxi), market valuations of comparable companies (such as Cambricon, WeRide, and Pony.ai) are referenced. Specifically for Kunlunxin's upcoming IPO, Nomura employs a relative valuation method, anchoring its market cap to a certain proportion of industry leader Cambricon's market cap, capturing the potential for value re-rating upon independent listing. This analytical approach highlights the value logic of Baidu's transformation from a traditional search company to an AI infrastructure provider.

Methodology notes

• Valuation methodsSOTP Valuation

  SOTP Valuation

  Valuing different business segments (e.g., mature advertising vs. high-growth AI businesses) separately using different valuation multiples and summing them up provides a more accurate reflection of a diversified tech giant's intrinsic value, avoiding underestimation of high-growth segments with a single metric.

• Valuation methodsPS valuation

  Price-to-Sales (P/S) Valuation

  A common metric for valuing unprofitable or high-growth tech subsidiaries by comparing P/S multiples of industry peers, suitable for assessing the value of chip businesses like Kunlunxin.

• Industry/Industrial Analysis FrameworksUpstream-Midstream-Downstream Transmission

  Industry Chain Transmission Effect

  Analyzing how upstream chip capabilities (Kunlunxin) drive midstream cloud services (AI Cloud Infrastructure) growth, which in turn spurs downstream applications, showcasing how foundational technological breakthroughs enhance overall business competitiveness.

Asset mapping & comparison

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

• Baidu (BIDU.US / 09888.HK)

  Direct beneficiary, holds majority stake in Kunlunxin and will benefit from IPO and subsequent dividends

  Strengths

  High growth in AI cloud business, explosive GPU cloud revenue, proprietary chip capability

  Weaknesses

  Continued decline in traditional online marketing business, dragging overall profitability

  Comparison

  Compared to pure advertising internet companies, has stronger AI infrastructure moat; compared to pure chip companies, has richer application scenarios and data advantages

  Risks

  Traditional search advertising deteriorates faster than expected; cloud and chip revenue growth slower than expected

• Kunlunxin (KLX)

  Baidu's unlisted chip subsidiary, planning IPO

  Strengths

  Supports Baidu's rapid AI cloud infrastructure growth, GPU cloud revenue up 184% YoY

  Weaknesses

  Not yet independently listed, limited liquidity

  Comparison

  Valuation benchmarked to Cambricon, with ~30% discount

  Risks

  IPO progress falls short of expectations; increased market competition

Key data

• 1Q26 BGB RevenueRMB 26 billionUp 2.1% YoY, exceeding consensus by 4%
• 1Q26 AI Cloud Infrastructure RevenueRMB 8.8 billionUp 79% YoY, exceeding Nomura's assumption by 9%
• 1Q26 Online Marketing RevenueRMB 12.6 billionDown 21.3% YoY, below consensus by 4%
• Kunlunxin (KLX) Valuation$44 billionRevised upward, equivalent to 40% of Cambricon's market cap
• Target Price$190Up from $186, implying 24x FY2026 expected P/E

Impact & implications

The report suggests that Baidu's AI transformation has entered a harvest phase, with cloud business growth proving its technology commercialization capability. Kunlunxin's independent IPO will not only unlock hidden value but also improve Baidu's capital structure, enabling it to reward shareholders through cash dividends and stock buybacks. This positively reassesses Baidu's investment value as an AI infrastructure leader, boosting investor confidence and narrowing valuation gaps.

Risks

• Traditional search advertising business deteriorates faster than expected
• Cloud and chip business revenue growth slower than expected
• New regulatory requirements in other advertising verticals

What to watch

• Final timing and details of Kunlunxin (KLX) IPO
• Specific announcement timing and payout ratio for 2026 cash dividend
• Signs of stabilization in online marketing business
• Continued growth rate of AI Cloud Infrastructure revenue