Baidu shares have declined nearly 20% over the past month, erasing roughly $11 billion in market value since hitting a three-year high in late January. The pullback reflects investor skepticism over the company's heavy artificial intelligence (AI) investments translating into meaningful financial returns quickly enough, especially as its core advertising business faces pressure from a softer macroeconomic environment in China.
Analysts broadly expect both revenue and profit to decline year-over-year for the December quarter, driven in part by higher infrastructure spending tied to AI computing capacity. These strategic investments have raised concerns about margin compression. The company recently took a RMB 16.2 billion impairment charge linked to a review of its infrastructure portfolio, highlighting the financial strain of scaling AI capabilities.
Baidu's online marketing revenue, historically its most reliable engine, fell 18% year-over-year to RMB 15.3 billion, dragging total company revenue down 7% to RMB 31.2 billion. This advertising weakness makes it harder to offset rising AI-related costs. In contrast, AI-driven businesses are showing rapid growth: AI Cloud revenue rose 21% to RMB 6.2 billion, while AI-native marketing services surged 262% to RMB 2.8 billion. However, the scale of this growth is not yet sufficient to offset the broader declines.
Investor confidence has waned, with major funds like HHLR Advisors selling significant stakes. Market enthusiasm in China's AI space has gravitated toward pure-play startups like DeepSeek, MiniMax, and Zhipu, which are seen as offering more direct exposure to AI growth. In an attempt to restore trust, Baidu announced its first-ever dividend and a three-year stock buyback plan worth up to $5 billion, but the market reaction has been muted.
