Morgan Stanley released a research report cutting its price target on Baidu (BIDU) US shares by approximately 13%, from US$80 to US$70, while maintaining an "underweight" rating.
The investment bank expects that, due to the weak macroeconomic environment, Baidu's core advertising revenue decline will widen to 22% in the third quarter, with limited visibility on a reversal.
However, buoyed by triple-digit strong growth in GPU cloud, the AI cloud business is accelerating significantly, with growth forecast to surge 97% year on year, which will help offset part of the impact from the advertising decline. Core revenue for the third quarter is expected to edge up 0.8% year on year.
Morgan Stanley noted that, dragged down by higher artificial intelligence investment, Baidu's third-quarter core adjusted operating profit is expected to fall 27% year on year to a record low of 1.6 billion yuan, with an operating margin of approximately 6.5%.
Among the segments, AI cloud infrastructure performed strongly, with revenue expected to reach 8.3 billion yuan, as GPU rental demand remains the main driver of the cloud business.
Given the limited recovery in the core business and continuously rising AI investment, Morgan Stanley lowered its adjusted operating profit forecasts for Baidu for this year and next by 13% and 7%, respectively.
It also expects full-year 2026 core adjusted operating profit of 9 billion yuan, down 37% year on year. In addition, the bank raised its 2026 capital expenditure forecast from 24 billion yuan to 35 billion yuan.
Comments