BIDU(US:BIDU) Hua Er Jie Jian Wen·2025-11-24 10:51Core Insights - Morgan Stanley upgraded Baidu's rating and target price, believing the market has significantly underestimated Baidu's AI transformation speed and scale, with cloud revenue expected to grow by 61% by 2026 due to increased Kunlun chip sales [1][2] Kunlun Chip Sales - Kunlun chip revenue is projected to surge from approximately RMB 1.3 billion in 2025 to RMB 8.3 billion in 2026, representing a sixfold increase [2] Revenue Projections - Baidu's core revenue estimates for 2026 show a steady increase, with Q4 2026 projected at RMB 33.1 billion, reflecting a quarter-on-quarter growth of 12% [3] - AI native marketing services are expected to grow by 55% year-on-year by 2026, while traditional search revenue is anticipated to decline significantly [6][7] GPU Computing Growth - Baidu's GPU computing revenue is expected to double by 2026, with Q3 GPU leasing subscription revenue growing by 128% year-on-year [5] - AI cloud revenue has become a major growth engine, accounting for about 25% of Baidu's core revenue [5] Traditional Advertising Challenges - Traditional search and information flow advertising revenues fell by approximately 30% in Q3, with AI native marketing services growing but impacting traditional revenue streams [7][8] Asset Impairment Impact - A RMB 16 billion asset impairment in Q3 is expected to positively influence Baidu's core profitability in 2026-27, reducing annual depreciation costs by approximately RMB 8 billion [8][9] Valuation Methodology - Morgan Stanley shifted its valuation approach to a sum-of-the-parts (SOTP) method, estimating a total advertising business value of $12 billion and a cloud business value of $34 billion, leading to a target price of $188 by December [9]