Baidu 1Q26 Preview: Rising Revenue Contribution from AI Businesses, UBS Maintains Buy but Cuts Target Price

Overview

This report is UBS's preview of Baidu's 1Q26 earnings. The core view is that Baidu's AI-driven businesses are contributing an increasing share of revenue, especially AI Cloud Infra, which will become the main growth driver; meanwhile, the traditional core advertising business still faces seasonal and demand pressure. UBS maintains a Buy rating on BIDU, but lowered the 12-month target price from US$180 to US$170 after cutting the core advertising valuation multiple and the Apollo Go valuation assumption.

Core views

UBS expects Baidu's 1Q26 core revenue to decline 2.4% YoY to RMB24.8 billion, with core non-GAAP operating profit of RMB3.2 billion, implying an operating margin of 12.9%. AI Cloud Infra is expected to deliver revenue growth of more than 40%, driven by surging AI demand, tight compute supply, and industry price increases. Kunlunxin's self-developed chip supply advantage should help win new customers and renew existing ones, and its listing progress is viewed as an important catalyst for BIDU shares. AI-native Marketing is expected to maintain strong growth for the full year, while AI Applications will continue to focus on user expansion and AI feature enhancement, including opportunities in agent products such as OpenClaw. On the downside, core advertising revenue under the old reporting basis is expected to fall 21% YoY in 1Q26, and may also contract by a mid-teens percentage sequentially.

Analysis framework

The report combines an earnings preview, segment revenue forecast revisions, and SOTP valuation. UBS raised its 1Q26 core cloud revenue forecast to reflect AI-driven demand, while lowering its core advertising revenue forecast to reflect seasonal weakness. On valuation, the target price is based on a sum-of-the-parts approach: core advertising at 4x 2026E P/E, cloud business at 3x P/S, Apollo Go at US$8 per share, Kunlunxin at US$50 per share, plus net cash and long-term investments.

Methodology notes

• Valuation methodsSOTP

  Sum-of-the-parts valuation

  UBS values Baidu's different businesses separately and then adds them together, including core advertising, cloud business, Apollo Go, Kunlunxin, net cash, and long-term investments, to derive the 12-month target price.

• earnings_previewsegment_forecast_revision

  Segment forecast revision

  The report raises AI cloud-related revenue forecasts while lowering advertising revenue forecasts to reflect the offset between strong AI demand and weak advertising seasonality.

Asset mapping & comparison

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

• BIDU.US

  Core coverage name

  Strengths

  Strong AI Cloud Infra growth, rising AI business revenue contribution, Kunlunxin's self-developed chip supply advantage, and management's focus on shareholder returns.

  Weaknesses

  Core advertising revenue is expected to decline 21% YoY in 1Q26, and AI and new business investments may limit margin expansion.

  Comparison

  UBS maintained a Buy rating but lowered the target price from US$180 to US$170, reflecting both long-term AI opportunity and near-term advertising pressure.

  Risks

  Intensifying competition, weaker-than-expected execution of new businesses, regulatory risk, rising costs, key management turnover, intellectual property risk, and overseas expansion risk.

• 09888.HK

  Baidu's Hong Kong-listed equivalent

  Strengths

  Shares the same company fundamentals and AI transformation logic as BIDU.US.

  Weaknesses

  Also affected by advertising cycles, AI investment, and changes in market valuation assumptions.

  Comparison

  UBS lowered the target price for 9888.HK to HK$165 from HK$175.

  Risks

  In addition to company fundamentals risks, it is also affected by Hong Kong market liquidity and regional risk appetite.

• Kunlunxin

  Baidu's AI chip-related subsidiary and potential catalyst

  Strengths

  Self-developed chips help cloud supply capability and support new customer acquisition and renewals; listing progress is viewed as a major catalyst.

  Weaknesses

  The listing timetable, commercialization scale, and capital market acceptance still need to be verified.

  Comparison

  UBS assigns Kunlunxin a US$50/share valuation contribution in the SOTP.

  Risks

  Regulatory uncertainty around a red-chip or H-share listing, AI chip competition, supply chain risk, and customer concentration risk.

• Apollo Go

  Component of Baidu's autonomous-driving valuation

  Strengths

  Autonomous driving provides Baidu with long-term optionality for growth.

  Weaknesses

  The valuation assumption was lowered, reflecting more cautious commercialization and peer valuations.

  Comparison

  UBS values Apollo Go at US$8 per share, down from US$15 previously, and references the latest valuation of Pony.ai.

  Risks

  Commercialization progress, regulatory approvals, operating costs, and autonomous driving competition risk.

Key data

• 12-month target priceUS$170.00Previously US$180.00; UBS maintains a Buy rating.
• Current priceUS$111.56Price date: 2026-04-13.
• 1Q26E core revenueRMB24.8 billion, -2.4% YoYStrong cloud revenue partially offsets advertising weakness.
• 1Q26E core non-GAAP operating profitRMB3.2 billionImplied operating margin of 12.9%.
• AI Cloud Infra revenue growthMore than 40%Supported by AI demand, tight compute supply, and industry price increases.
• AI business revenue contributionMore than 50%Expected to account for more than half of Baidu's General Business revenue in 1Q26 and FY26, versus 43% in 4Q25.
• Core advertising revenueDown 21% YoY in 1Q26Affected by seasonal factors from the later timing of the Lunar New Year.
• 9888.HK target priceHK$165Previously HK$175.

Impact & implications

The report is moderately positive for Baidu stock: AI Cloud, Kunlunxin, and AI applications are increasing the growth profile of the company's revenue mix and could serve as catalysts for valuation re-rating; however, the short-term decline in advertising and investment in new businesses will limit margin expansion. The target price cut shows that UBS remains optimistic about the long-term AI transition, but is more cautious about traditional advertising and the valuation of some new businesses.

Risks

• Intensifying competition.
• Weaker-than-expected execution of new businesses.
• Risks from investee companies and business integration.
• Rising costs for traffic acquisition, content, and brand promotion.
• Risks related to IT system maintenance and upgrades.
• Intellectual property infringement risk.
• Risks from international market expansion.
• Key management turnover risk.
• Regulatory risk.
• AI and other new-business investments may constrain margin expansion.

What to watch

• 1Q26 results to be released in May 2026 and management guidance on the pace of advertising recovery.
• Whether AI Cloud Infra revenue growth can stay above 40%.
• Whether AI business can maintain a share above 50% of Baidu's General Business revenue.
• Progress in the Kunlunxin listing process and investor feedback.
• Whether core non-GAAP operating margin can recover to and hold at low double digits.
• Details of the dividend plan and shareholder returns during the year.
• User expansion, commercialization, and valuation changes for Apollo Go and AI Applications.