Baidu, Inc. (NASDAQ:BIDU) reported a second quarter that made its AI transformation look both more credible and more difficult. Revenue fell 4% year over year to RMB31.3 billion, below consensus estimates of roughly RMB32.0 billion, while non-GAAP diluted earnings per ADS of RMB7.22 also missed consensus estimates of RMB9.84. Shares closed Tuesday at $90.87, down 12.7% following the release. For Baidu, Inc. (NASDAQ:BIDU), the question is no longer whether AI can become a major business. It is whether AI can grow consistently enough—and profitably enough—to replace a shrinking advertising engine.
Under Baidu, Inc. (NASDAQ:BIDU)’s company-defined revenue classification, Core AI-powered Business reached RMB12.5 billion, up 25% year over year and equal to 50% of General Business revenue. It remained larger than Legacy Business, which declined 23% to RMB10.4 billion. However, Core AI-powered Business fell 8% sequentially, while Legacy Business increased 3%. These figures come from the company’s internal, unaudited management records.
BULL CASE: GPU CLOUD IS ACCELERATING
Baidu, Inc. (NASDAQ:BIDU) generated RMB7.3 billion from AI Cloud Infrastructure, up 50% year over year. Within that category, GPU Cloud revenue surged 283%, accelerating from 184% growth in the first quarter. Management expects strong AI Cloud Infrastructure growth in the second half and said a richer GPU Cloud mix, better utilization, and scale should support further improvement in AI Cloud Infrastructure margins.
Baidu, Inc. (NASDAQ:BIDU) also produced RMB3.4 billion in operating cash flow, marking a fourth consecutive positive quarter. Its company-defined total cash and investments measure reached RMB283.1 billion as of June 30. The measure is broader than liquid cash because it includes restricted cash, long-term time deposits and held-to-maturity investments, but it still highlights substantial balance-sheet resources for cloud infrastructure, ERNIE development and Apollo Go’s international expansion.
BEAR CASE: AI GROWTH HAS NOT STOPPED THE CONTRACTION
Online marketing revenue at Baidu, Inc. (NASDAQ:BIDU) fell 19% to RMB13.1 billion, and management expects the business to remain under pressure in the second half. AI Applications revenue grew only 3% to RMB2.5 billion, while AI-native marketing services were roughly flat at RMB2.6 billion. The AI growth story remains heavily dependent on infrastructure.
Profitability also weakened. Baidu, Inc. (NASDAQ:BIDU) reported attributable net income of RMB2.3 billion, down 68% year over year. Cost of revenue increased 4%, primarily because of higher AI Cloud costs, while total other income fell to RMB184 million from RMB4.9 billion. GAAP operating margin was 10%, and non-GAAP operating margin was 12%.
INSIDER MONKEY’S HEDGE FUND DATA
Insider Monkey’s first-quarter database showed 50 hedge funds holding Baidu, Inc. (NASDAQ:BIDU) at the end of March 2026, down from 57 three months earlier. Those positions predate the second-quarter results.
CONCLUSION
Under Baidu’s internal classification, Core AI-powered Business has surpassed Legacy Business within General Business. GPU Cloud growth supports the strategic case, but the second-quarter sequential slowdown, continued advertising decline, and lower profit show that the economic crossover has not arrived. The AI transition remains credible, but a stronger investment case now depends on renewed sequential AI growth and improving margins.
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Disclosure: None. This article is originally published at Insider Monkey.
