Baidu Revenue Falls 4% in Q2 as Legacy Ad Business Shrinks and AI Cloud Jumps 50%
Baidu, the Chinese search and artificial-intelligence company whose American depositary shares trade on the Nasdaq, reported second-quarter revenue of RMB 31.3 billion (US$4.62 billion) before the US market opened on Tuesday, a 4% decline from a year earlier and a 2% drop from the prior quarter, according to the company's earnings release distributed via PR Newswire.
The results came in below Wall Street's expectations. A Yahoo Finance summary of analyst forecasts pegged revenue at RMB 31.96 billion, while non-GAAP earnings of RMB 7.22 per American depositary share fell well short of the RMB 9.92 that analysts had anticipated. Net income of RMB 2.3 billion also trailed the roughly RMB 3.42 billion consensus. Baidu's Nasdaq-listed shares fell about 9.3% in Tuesday morning trading, Yahoo Finance reported.
The central story in the quarter was a widening split between Baidu's declining legacy advertising business and its fast-growing AI operations. What the company now calls Baidu General Business — the search-and-services segment excluding its iQIYI streaming unit — generated RMB 25.2 billion (US$3.71 billion), down 4% year over year, according to the release. Within that segment, revenue from Baidu Core AI-powered Business reached RMB 12.5 billion, accounting for half of General Business revenue.
Online marketing services, the traditional search-advertising engine that long powered Baidu's profits, fell 19% year over year to RMB 13.1 billion, the release stated. Offsetting that decline, the company's AI cloud infrastructure revenue rose 50% to RMB 7.3 billion. Baidu said growth in its GPU cloud accelerated to 283% year over year, up from 184% in the first quarter. AI applications revenue rose 3% to RMB 2.5 billion, while AI-native marketing services were roughly flat at RMB 2.6 billion.
iQIYI, Baidu's video-streaming subsidiary, reported revenue of RMB 6.3 billion (US$927 million), a 5% decline from a year earlier, according to the release.
On profitability, Baidu reported GAAP operating income of RMB 3.0 billion (US$446 million), for an operating margin of 10%. On a non-GAAP basis, which excludes items such as share-based compensation and certain amortization, operating income was RMB 3.8 billion (US$558 million), a 12% margin. Net income attributable to Baidu was RMB 2.3 billion (US$342 million) on a GAAP basis and RMB 2.6 billion (US$379 million) on a non-GAAP basis, the company said.
Per-share results reflected the same GAAP-versus-adjusted gap. Diluted earnings were RMB 5.74 (US$0.85) per ADS under GAAP and RMB 7.22 (US$1.06) per ADS on a non-GAAP basis, according to the release.
Chief Executive Robin Li framed the quarter around the company's pivot toward artificial intelligence. "With AI-powered Business now firmly established as the core of Baidu, we are strengthening the foundations for our next phase of AI-driven growth," Li said in the release. Chief Financial Officer Haijian He highlighted that revenue from Baidu Core AI-powered Business reached RMB 12.5 billion and continued to account for half of Baidu General Business revenue.
Baidu continued to pour money into its AI buildout. The company reported free cash flow of negative RMB 7.954 billion (US$1.173 billion) for the quarter, which it attributed primarily to elevated capital expenditures of RMB 11.39 billion. As of June 30, 2026, cash and short-term investments totaled RMB 166.2 billion, comprising RMB 24.5 billion in cash and RMB 141.7 billion in short-term investments, according to the release.
The company also provided an update on its Apollo Go autonomous ride-hailing service, saying its global footprint had expanded to 28 cities and that its vehicles had accumulated more than 350 million autonomous kilometers, including over 240 million fully driverless. Baidu said it had launched operations in Dubai, begun testing in London, and received permits for fully driverless testing in Hong Kong.
Separately, Baidu detailed progress toward a primary listing in Hong Kong. The company said it submitted a primary conversion application to the Hong Kong Stock Exchange in July 2026 and received acknowledgement, and that it had scheduled an extraordinary general meeting for August 26, 2026, to seek shareholder approval, with effectiveness expected within 2026. Baidu also said it had returned US$259 million to shareholders through buybacks under its current repurchase program since the first quarter.
The quarter underscores the transition confronting Baidu: an established advertising franchise in decline even as capital-intensive AI cloud and autonomous-driving businesses scale rapidly, a shift that is compressing near-term margins and free cash flow. The extent to which the AI-powered lines can grow fast enough to overtake the shrinking legacy business is likely to remain the central question for the company in the quarters ahead.
