Baidu is navigating through the growing pains of its AI transformation. On May 18, Baidu released its first-quarter 2026 financial results, showing total revenue of 32.1 billion yuan, a slight year-over-year decrease of 1%. Net profit attributable to Baidu during the same period was 3.445 billion yuan, shrinking by over 50% compared to the previous year.
The significant decline in profit is primarily attributed to the contraction of high-margin businesses and a reduction in "non-operating income" such as investment gains. On one hand, Baidu's online marketing services revenue for Q1 2026 was 12.6 billion yuan, down 22% year-over-year. In contrast, revenue from AI-related businesses like cloud services grew rapidly. However, cloud services inherently require higher costs for computing power, servers, and bandwidth, resulting in weaker short-term profitability compared to the advertising business.
On the other hand, Baidu recorded "other income" of 4.487 billion yuan in Q1 2025, largely due to fair value gains and long-term investment profits. This figure plummeted to 626 million yuan in Q1 2026. Overall, the sharp profit decline reflects the inevitable challenges Baidu faces during its transition period.
Historically, Baidu relied on high-margin businesses like search advertising. Now, the baton of driving revenue growth has been passed to "core AI new businesses," which require substantial computing power and heavy investment, inevitably squeezing profit margins in the short term.
Despite this, Baidu's revenue structure reveals notable highlights, with AI-related businesses being the most prominent. In Q1 2026, Baidu's AI business revenue reached 13.6 billion yuan, accounting for 52% of its general business income. This marks the first time AI business has contributed more than half of Baidu's revenue.
"In the first quarter, Baidu's AI business revenue exceeded half of its general business income for the first time, indicating that AI has become Baidu's core driving force," stated Baidu founder Robin Li. Specifically, AI cloud revenue in Q1 2026 was 8.8 billion yuan, a 79% year-over-year increase, while AI application revenue remained stable at 2.5 billion yuan.
It is worth noting that Baidu continues to advance its AI applications. At the recent Create 2026 conference, Baidu introduced and upgraded several AI agents, including the code agent Miaoda, the digital human agent Baidu Yijing, and the enterprise decision-making agent Famou 2.0, targeting areas such as personal creation, software development, content production, and industrial decision-making.
From this perspective, Baidu aims to evolve AI applications from standalone tools into comprehensive productivity gateways, enabling them to integrate into real-world work, production, and decision-making processes. Although Baidu's Q1 financial report suggests that the commercialization of its AI applications is still in its early stages, if these applications can establish stable use cases, they may unlock new commercial opportunities.
In summary, Baidu is currently in a phase where traditional advertising is contracting, AI cloud services are scaling up rapidly, and AI agent applications are paving the way for future growth. As Baidu progresses with its AI initiatives, the market is closely watching whether its AI narrative will translate into tangible commercial success.
