Investment Rating - The report assigns a "Buy" rating for the company Baidu (BIDU US) with a target price of $99.00, indicating a potential upside of 14.1% from the current price of $86.76 [4][14]. Core Insights - Traditional search continues to face pressure, but the value of the second and third growth curves is becoming evident [2]. - The report highlights that Baidu's core advertising revenue has been negatively impacted by the transformation towards AI search, with a 15% year-on-year decline [7]. - The AI business is showing promising growth, with new AI business revenues exceeding 10 billion RMB, a 34% year-on-year increase [7]. - The report anticipates that advertising revenue will remain under pressure in the upcoming quarters, projecting a 16% decline for the full year 2025 [7]. Financial Overview - Revenue projections for Baidu are as follows: - 2023: 134,598 million RMB - 2024: 133,125 million RMB - 2025E: 130,808 million RMB - 2026E: 140,276 million RMB - 2027E: 147,416 million RMB - Net profit estimates are: - 2023: 28,747 million RMB - 2024: 27,002 million RMB - 2025E: 14,739 million RMB - 2026E: 15,887 million RMB - 2027E: 15,788 million RMB [3][15]. - The report indicates a significant adjustment in earnings per share (EPS) forecasts, with 2025E EPS revised down to 42.30 RMB, reflecting a 44.9% year-on-year decline [3][15]. Business Segments - Baidu's core revenue is projected to decline, with online marketing services expected to drop by 25% year-on-year in Q3 2025 [9]. - The cloud segment is expected to grow by 25% year-on-year, although growth may slow in the second half of the year due to project-based service revenue recognition [7]. - The autonomous driving and new business segment is showing strong growth, with a 148% year-on-year increase in global orders for the "萝卜快跑" service [7]. Valuation and Outlook - The report maintains a valuation of 8 times P/E for traditional search advertising and 3 times P/S for AI and cloud businesses, supporting the target price of $99 [7]. - The report emphasizes that the value of Baidu's AI and cloud businesses remains underestimated, presenting a potential turnaround opportunity for the company [7].

Core Viewpoint - The article discusses the significant changes in Baidu's search engine, marking it as the largest revision in a decade, emphasizing the integration of AI technologies into search functionalities and the potential implications for investment and AI entrepreneurship [2][3]. Group 1: Changes in Search Engine - Baidu has established itself as synonymous with "search" in the Chinese market, achieving daily search volumes in the billions [2]. - The traditional search engine business model heavily relied on online marketing services, particularly advertising revenue, which accounted for over half of its income [3][4]. - The advent of AI transforms search capabilities, allowing for more natural language processing and user intent understanding, moving beyond simple keyword matching [5][8]. Group 2: New Features and Capabilities - The updated search interface allows for longer, more conversational queries, accommodating a wider range of user inputs [10]. - Multi-modal input methods have been introduced, including voice search and image recognition, enhancing user interaction [15][19]. - Baidu's AI search now generates results that include text, images, and videos, with a focus on providing credible sources for the information presented [23][26]. Group 3: Ecosystem and Collaboration - The introduction of the MCP (Model Capability Protocol) facilitates collaboration between various AI applications, positioning Baidu as a leader in integrating AI capabilities across platforms [26]. - Baidu's search platform has integrated with 18,000 MCPs and over 220 AI applications, creating a diverse and open ecosystem [26]. Group 4: Video Generation and AI Creativity - Baidu has launched the MuseSteamer video generation model, which has gained recognition for its performance in generating high-quality videos from images [31]. - The model supports the creation of videos with sound, enhancing the creative possibilities for content creators [31]. Group 5: Future Implications - The changes in Baidu's search engine represent a significant shift towards a more integrated AI ecosystem, with the potential to redefine user experience and engagement [33]. - The competition among major tech companies to dominate the AI landscape is intensifying, presenting both opportunities and challenges for investors and entrepreneurs [32][33].

Group 1 - Bilibili's former game cooperation department general manager has been arrested [1] - Alibaba and Honor are further deepening their cooperation in the AI ecosystem [2] - Tesla has paused production of its humanoid robot to modify its design [3] Group 2 - Baidu has launched a video generation model called MuseSteamer [4] - Microsoft is reportedly planning to lay off up to 9,000 employees in its latest round of job cuts [5] - Lei Jun responded to claims of "overstated orders," stating that the SU7's order transfers are only 15% of the total orders for the YU7 [6] Group 3 - Tesla's delivery volume fell by 13% to 384,100 units in the second quarter, marking two consecutive quarters of double-digit declines [7] - The China Passenger Car Association estimates that wholesale sales of new energy passenger vehicles reached 1.26 million units in June, a year-on-year increase of 29% [8] - Elon Musk plans to invest millions of dollars to build exclusive recreational facilities for employees at the Texas Starlink factory [9] Group 4 - The world's first 500-megawatt impact turbine rotor has been successfully developed, enhancing the capabilities of hydropower machines [10]