Investment Rating - The report maintains a "Buy" rating for Baidu with a target price of $146.70, representing a potential upside of 61.7% from the current price of $90.74 [2][3]. Core Insights - Baidu is actively promoting its business transformation by integrating more generative AI-related search results to enhance user experience and engagement. Although the monetization of these search results has not yet begun, it is expected to start by the end of Q2, which should help boost advertising revenue growth and operating profit margins [9]. - The company has introduced several AI applications, including the Wenxin large model 4.5 Turbo and X1 Turbo, which feature multi-modal capabilities, strong reasoning, and reduced costs. The input price for the 4.5 Turbo model is only 0.8 RMB per million tokens, and the output price is 3.2 RMB, marking an 80% price reduction compared to its predecessor [1]. - Baidu's cloud business is anticipated to maintain strong revenue growth driven by increasing demand for digitalization and AI solutions, supporting overall revenue growth for the group [9]. Financial Summary - The financial forecast for Baidu shows expected sales revenue of 137,622 million RMB in FY25, with a projected growth rate of 3.4%. The adjusted net profit is estimated at 26,943.5 million RMB, reflecting a slight decrease of 0.2% [10]. - The company’s sales revenue for FY23A was 134,598 million RMB, with a year-on-year growth of 8.8%. However, FY24A is projected to see a decline of 1.1% in sales revenue [11]. - The adjusted net profit margin is expected to stabilize around 19.6% by FY27E, with a return on equity projected at 7.6% [12].

Investment Rating - The report maintains a "Buy" rating for Baidu with a target price of $146.70, representing a potential upside of 61.7% from the current price of $90.74 [2][9]. Core Insights - Baidu is actively promoting its business transformation by integrating more generative AI-related search results to enhance user experience and engagement. Although the monetization of these search results has not yet begun, it is expected to start by the end of Q2, which should help boost advertising revenue growth and operating profit margins [9]. - The company has introduced several AI applications, including the Wenxin large model 4.5 Turbo and X1 Turbo, which feature multi-modal capabilities, strong reasoning, and reduced costs. The input price for the Wenxin 4.5 Turbo is only 0.8 RMB per million tokens, and the output price is 3.2 RMB, marking an 80% price reduction compared to its predecessor [9]. - Baidu's cloud business is anticipated to maintain strong revenue growth driven by increasing demand for digitalization and AI solutions, supporting overall revenue growth for the group [9]. Financial Summary - The financial forecast for Baidu shows expected sales revenue of 137,622 million RMB in FY25, with a projected growth rate of 3.4%. The adjusted net profit is expected to be 26,943.5 million RMB, reflecting a slight decrease of 0.2% [10][11]. - The company’s operating profit is projected to be 21,430 million RMB in FY25, with a slight increase in operating margin to 15.6% [11]. - Baidu's total assets are expected to grow from 427,780 million RMB in FY24 to 457,698 million RMB in FY25, indicating a healthy balance sheet [11].

Core Viewpoint - The era of AI applications has arrived, marking a significant transformation in global business dynamics driven by AI super applications, which represent not just a technological revolution but a comprehensive evolution in business thinking [2]. Group 1: AI Super Applications - AI super applications are expected to evolve and bring disruptive changes to various industries, with a focus on identifying the next generation of super applications [3]. - The rise of DeepSeek illustrates a profound shift in public communication logic, highlighting the changing global landscape and the increasing sense of insecurity among populations, which amplifies any potential disruptive factors [5][6]. Group 2: Technological Trends - Embodied intelligence is a leading trend in AI research, merging physical interaction with autonomous decision-making, which is essential for the development of the next generation of general AI [6]. - AI is recognized as the most transformative technology in the last 50 years, reshaping industries and lifestyles, with super applications being empowered by ubiquitous AI engines [8]. Group 3: Industry Applications - AI applications are proliferating under the influence of large models, transitioning from single tools to professional services and from single agents to multi-intelligent collaborations across various fields [9]. - The education sector is experiencing a transformation with AI models that enable personalized, large-scale, and high-quality learning experiences, moving from a one-size-fits-all approach to tailored education [24]. Group 4: Entrepreneurial Opportunities - The current environment presents both challenges and opportunities for entrepreneurs, particularly in vertical fields where specialized model optimization and scene implementation can thrive [18][25]. - The importance of understanding the unique needs of specific industries and leveraging AI tools to create value is emphasized, as companies must focus on delivering tangible results [21]. Group 5: Data and Ecosystem - Data is identified as a critical element for future super applications, with companies focusing on building comprehensive data service platforms to drive innovation and integration with AI [41]. - The ecosystem for AI applications is evolving, with collaborative efforts among companies to enhance business efficiency and reduce costs through AI integration [45].