Baidu 1Q26 preview: AI cloud infrastructure accelerates, while traditional advertising remains the main drag
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Baidu 1Q26 preview: AI cloud infrastructure accelerates, while traditional advertising remains the main drag
Goldman Sachs expects Baidu's 1Q26 group revenue to be broadly flat year over year, with AI-driven businesses accounting for about half of total revenue; AI cloud infrastructure is the standout, but there is still no sign of a turning point in traditional search advertising.
- AI cloud infrastructure revenue is expected to accelerate to more than 40% growth in 1Q26, up from roughly 30% in 2025, mainly supported by GPU subscription revenue and MaaS demand.
- The traditional search advertising business continues to face pressure from the proliferation of chatbots and AI agents, and the report sees no sign of a turning point yet.
- Goldman Sachs expects Baidu's group operating margin to bottom in 3Q/4Q25 and improve slightly sequentially in 1Q26, helped by cost reductions, better cloud margins, and prior impairment charges.
- Revenue estimates for 2026E-2028E were modestly lowered by 1%, as stronger-than-expected cloud revenue partly offsets weak traditional advertising; net profit estimates were broadly unchanged.
Report interpretation
Overview
This report is Goldman Sachs' preview of Baidu's 1Q26 results. It expects Baidu to report 1Q26 results in mid-May, with group revenue broadly flat year over year and AI-driven businesses accounting for about 50% of total revenue. AI cloud infrastructure is seen as the main growth highlight and should partially offset the drag from declines in traditional search advertising; at the same time, improving operating efficiency is expected to support sequential margin expansion.
Core views
The core view is that Baidu's business mix is shifting toward AI cloud and AI-driven revenue, while traditional advertising remains under pressure. AI cloud infrastructure includes subscription revenue, external chip sales, and traditional CPU and project-based businesses, and by 4Q25 it had already accounted for more than half of AI-driven business revenue. Goldman Sachs believes strong GPU-related subscription revenue and MaaS demand, together with greater recognition of Baidu's full-stack capabilities, will drive acceleration in cloud infrastructure revenue in 1Q26. By contrast, traditional search advertising remains pressured by diversion to AI chatbots and agents, with no clear short-term inflection point.
Analysis framework
The report uses a results-preview and segment-disaggregation approach, focusing on the revenue mix under the new and old business segment definitions, AI cloud infrastructure growth, pressure on traditional advertising, and group margin trends. It also incorporates forecast revisions for 2026E-2028E to assess the offset between stronger-than-expected cloud revenue and weaker traditional advertising.
Methodology notes
Break down revenue and margin trends by business segment
The report judges key operating indicators ahead of the 1Q26 earnings release, including group revenue, the share of AI-driven business, AI cloud infrastructure growth, decline in traditional advertising, and sequential changes in operating margin.
Compare growth, financial returns, valuation multiples, and composite percentiles
Goldman Sachs notes that its factor framework compares stocks with the market and sector peers using growth, financial returns, valuation multiples, and composite indicators, but Baidu is covered here as Not Rated.
Asset mapping & comparison
Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).
- BIDU.USPrimary coverage name, Baidu ADR
- Strengths
- Accelerating AI cloud infrastructure revenue, differentiated full-stack AI capabilities, and cost optimization supporting margin improvement.
- Weaknesses
- Traditional search advertising remains exposed to pressure from AI chatbots and agents, with no revenue inflection visible yet.
- Comparison
- Compared with the traditional advertising business, AI cloud infrastructure is the clearer growth driver; the report also mentions 09888.HK as the Hong Kong-listed security of the same company.
- Risks
- Higher AI/cloud-related capex, depreciation and amortization dragging on cloud margins, a larger-than-expected decline in advertising, and slower-than-expected progress on capital return plans.
- 09888.HKHong Kong-listed security of the same company
- Strengths
- Shares the same AI cloud growth and cost-optimization logic as BIDU.US.
- Weaknesses
- Also exposed to pressure in traditional advertising and volatility in group margins.
- Comparison
- The report assigns Not Rated to both BIDU/9888.HK.
- Risks
- The same risks as BIDU.US, plus Hong Kong market liquidity and valuation sentiment.
Key data
- 1Q26 group revenue expectationBroadly flat year over yearThe report expects AI-driven businesses to account for about 50% of total revenue, with cloud infrastructure growth offsetting the decline in traditional advertising.
- AI cloud infrastructure revenue growthExpected to exceed 40% in 1Q26Up from roughly 30% in 2025, mainly driven by GPU subscription revenue and MaaS demand.
- AI cloud infrastructure share of AI-driven businessMore than half as of 4Q25Under the new segment definition, this includes subscription revenue, external chip sales, and traditional CPU/project-based businesses.
- Share of traditional business revenueExpected to be below 50% of Baidu's salesTraditional search advertising remains under pressure, but a lower cost base helps narrow operating deleveraging pressure.
- Forecast revisions2026E-2028E revenue estimates cut by 1%, while net profit estimates remain broadly unchangedStronger-than-expected cloud revenue partly offsets weak traditional advertising, and margin improvement supports net profit stability.
- Market capitalization$39.3bnDisclosed in the report's Key Data.
- Enterprise value$35.0bnDisclosed in the report's Key Data.
- 3-month average daily trading value$319.7mnDisclosed in the report's Key Data.
Impact & implications
If AI cloud infrastructure continues to accelerate, Baidu's revenue mix and investment narrative will tilt further toward AI infrastructure and full-stack capabilities rather than traditional search advertising. But near-term valuation and market confidence will still depend on cloud capex, ROI, the impact of depreciation and amortization on cloud margins, as well as group free cash flow and capital efficiency. The Not Rated status means the report does not directly provide a buy or sell recommendation or a target price.
Risks
- Continued decline in the traditional search advertising business, with no clear short-term inflection point.
- Higher capex for AI/cloud infrastructure could raise questions about ROI.
- Higher depreciation and amortization may become a source of volatility in cloud business margins.
- The degree of improvement in group margins may be less than expected.
- There is uncertainty around the progress of Kunlunxin's spin-off, share buybacks, and dividend plans.
- Goldman Sachs has disclosed investment banking and other business relationships with Baidu, and the report is issued under a Not Rated stance.
What to watch
- 1Q26 cloud growth outlook and cloud margin trends.
- Capex and ROI for AI cloud infrastructure.
- Updates on Baidu share buybacks and dividend plans.
- Progress on the spin-off of the Kunlunxin division.
- A turnaround in group profitability, free cash flow, and capital deployment.
- Whether traditional search advertising shows signs of stabilization.