HTSC·2025-08-21 05:48Investment Rating - The investment rating for Baidu Group is maintained as "Buy" for both Hong Kong and US stocks [7]. Core Insights - Baidu's total revenue for Q2 2025 was 32.7 billion RMB, a year-on-year decrease of 3.6%, which was better than the expected decline of 4.8% due to rapid growth in AI cloud revenue [1]. - Non-GAAP net profit was 4.8 billion RMB, with a non-GAAP net profit margin of 14.7%, slightly above the expected 13.9% [1]. - The proportion of AI cloud revenue in Baidu's core revenue increased by 5.6 percentage points year-on-year to 24.8%, while advertising revenue's share decreased by 10 percentage points [1]. Revenue and Profit Analysis - Baidu's core revenue decreased by 1.6% year-on-year to 26.3 billion RMB, better than the expected decline of 3.4%, primarily due to strong growth in AI cloud revenue [2]. - Advertising revenue fell by 15% year-on-year to 16.2 billion RMB, attributed to moderate demand from advertisers and the impact of AI search transformation [2]. - Non-advertising revenue grew by 34% year-on-year to 10 billion RMB, with AI cloud revenue increasing by 27% to 6.5 billion RMB [2]. AI Transformation Progress - As of the end of June, 50% of Baidu's search results included AI-generated content, up from 35% in April, indicating rapid progress in AI transformation [3]. - By July, 64% of mobile search results featured AI-generated content in structured and multimodal formats [3]. - The average daily time spent by users on the Baidu app increased by 4% year-on-year, reflecting improved user experience [3]. Autonomous Driving Business - Baidu's autonomous driving service, "Luobo Kuaipao," expanded to 16 cities, with over 220 million orders in Q2 2025, a year-on-year increase of 148% [4]. - The company has established partnerships with Uber, Lyft, and domestic ride-hailing services, enhancing its collaboration network [4]. - The autonomous driving sector is expected to contribute significantly to Baidu's long-term valuation due to its cost advantages and potential for higher economic benefits in overseas markets [4]. Profit Forecast and Valuation - The non-GAAP net profit forecast for 2025, 2026, and 2027 has been adjusted downwards by 9.6%, 12.0%, and 9.8% to 18.9 billion RMB, 21.1 billion RMB, and 23.7 billion RMB respectively, primarily due to lower expectations for high-margin advertising revenue [5]. - The target price for Baidu's US stock is set at $89.60, while the Hong Kong stock target price is set at HKD 88.00, reflecting a slight decrease from previous estimates [5][26].