Baidu's GenAI Search Accelerates, Analyst Cites Strong Cloud Growth But Lowers FY25 Ad Forecast

Benchmark analyst Fawne Jiang lowered the price forecast for Baidu, Inc. BIDU from $130 to $120 while keeping a price forecast of a Buy rating.

On Wednesday, the company reported fiscal first-quarter revenue of $4.47 billion, up 3% year over year, topping the analyst consensus estimate of $4.30 billion. 

Adjusted earnings per ADS of $2.55 beat the analyst consensus estimate of $1.96.

The analyst writes that Baidu's first quarter results were strong, and AI Cloud was a standout, growing 42% year over year and delivering margins that outperformed key peers.

Jiang writes that, despite some expected variability tied to project-based revenue, the solid performance has led them to raise the full-year cloud forecast to 25% (from 20% prior), with room for further upside.

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Also, generative AI (GenAI) search is gaining traction faster than anticipated, adds the analyst.

Jiang views management’s target of over 50% of search queries to be powered by GenAI by mid-year as both a strategic and responsive shift.

Baidu's GenAI-driven search represents a significant departure from traditional models, with promising long-term potential, says the analyst.

Given ongoing uncertainty around monetization timing and effectiveness, the analyst revised the FY25 core advertising revenue forecast to -8% year-over-year (from flat) and adjusted the EPS estimates.

Investors can gain exposure to the stock via MicroSectors FANG ETNs due January 8, 2038 FNGS and Invesco Golden Dragon China ETF PGJ.

Price Action: BIDU shares are down 1.23% at $84.43 at the last check on Thursday.

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