Baidu Loses $11 Billion in Market Value as AI Revenue Grows But Advertising Collapses

Baidu lost $11 billion in market value this week after reporting its third consecutive quarter of revenue decline - a number that puts a price tag on the gap between China's AI ambitions and commercial reality.

TL;DR

$11 billion wiped from Baidu's market cap after shares dropped nearly 20% in the past month
-7% total revenue year over year for fiscal 2025, falling to RMB 129.1 billion ($18.5 billion)
-18% advertising revenue for the full year, down to RMB 15.3 billion as Baidu's core business erodes
+48% AI-powered revenue in Q4, now accounting for 43% of general business revenue - but not enough to offset the ad decline
$216 million exit by HHLR Advisors, which dumped its entire Baidu stake in Q4

The Full Picture

Metric	Q4 2025	FY 2025	YoY Change
Total Revenue	RMB 32.7B ($4.7B)	RMB 129.1B ($18.5B)	-3% (Q4), -7% (FY)
Online Marketing Revenue	-	RMB 15.3B	-18%
AI Cloud Infrastructure	RMB 5.8B	RMB 19.8B	+34%
AI Applications	RMB 2.7B	RMB 10.2B	+5%
AI-Native Marketing	RMB 2.7B	RMB 9.8B	+301%
Total Core AI Revenue	RMB 11.3B	RMB 40.0B	+48%
Net Income (GAAP)	RMB 1.8B ($255M)	RMB 5.6B ($799M)	-
Operating Loss (GAAP)	-	RMB -5.8B	Includes RMB 16.2B impairment
Free Cash Flow (TTM)	-	RMB -15.7B	-

What the Numbers Say

The Advertising Business Is in Free Fall

Baidu's online marketing revenue - the business that built the company - dropped 18% for the full year. This isn't a blip. It's the continuation of a structural decline as Chinese consumers and advertisers shift toward platforms like Douyin, Xiaohongshu, and WeChat, where discovery happens inside apps rather than through search.

Baidu App monthly active users held flat at 679 million. People are still using it. They're just not clicking ads at the same rate, and advertisers are following the attention elsewhere.

AI Revenue Is Growing Fast - From a Small Base

The AI business is the bright spot. Revenue from AI-powered services hit RMB 40 billion for the full year, up 48%, and now represents 43% of Baidu's general business revenue compared to 26% in fiscal 2024. AI-native marketing services surged 301% year over year. AI Cloud infrastructure revenue grew 34%.

But here is the math problem: RMB 40 billion in AI revenue couldn't offset the decline in a marketing business that still generates the majority of gross profit. The AI business is growing into a shrinking company.

Investors Are Not Waiting Around

HHLR Advisors, which had Baidu as a significant portfolio position representing 5.3% of its assets under management, sold every share in Q4 - a $216 million exit. The fund's top holdings are now PDD Holdings and Alibaba, companies with clearer paths to AI monetization.

The broader investor shift is visible across China's AI sector. Zhipu AI and MiniMax both filed for IPOs in early 2026, with both oversubscribed. Morgan Stanley initiated coverage on MiniMax with a buy rating and projected $700 million in revenue by 2027. Money is moving from legacy AI players toward pure-play startups that don't carry the weight of a declining legacy business.

What the Numbers Don't Say

Baidu's earnings report is heavy on AI metrics but light on the margins those businesses actually deliver. The company reported RMB 16.2 billion in asset impairments for the full year, contributing to an operating loss of RMB 5.8 billion. Free cash flow turned deeply negative at RMB -15.7 billion on a trailing twelve-month basis.

The 301% growth in "AI-native marketing" sounds impressive until you consider that this category didn't meaningfully exist a year ago. Rapid percentage growth from a near-zero base tells you about arc, not scale. The absolute number - RMB 9.8 billion for the full year - is still dwarfed by the RMB 15.3 billion in traditional advertising revenue that's evaporating.

Apollo Go, Baidu's robotaxi unit, delivered over 3.4 million fully driverless rides in Q4 alone and expanded to 26 cities globally. But the company has not disclosed unit economics for the service, and robotaxis remain a capital-intensive business with no clear timeline to profitability.

Robin Li's statement that "2025 marked a pivotal year as AI became the new core of Baidu" is aspirational. The numbers show a company where AI is becoming the fastest-growing segment, but the core advertising engine is shrinking faster than AI can replace it.

Baidu also announced a $5 billion share buyback program and its first-ever dividend policy alongside the results. When a company pairs weak earnings with aggressive shareholder returns, it normally signals that management does not see better internal uses for the capital - or that it needs to prop up a sliding stock price.

"In the crowded field of Chinese AI players, Baidu is viewed more as an optionality or valuation-driven sum-of-the-parts story rather than a clearly defined long-term winner," said Gary Tan, portfolio manager at Allspring Global Investments LLC.

Meanwhile, the competitive picture in China is only getting harder. DeepSeek recently expanded its flagship model's context window tenfold. Zhipu's GLM-5 doubled its parameter count. Alibaba's Qwen series continues to climb the open-source leaderboards. Baidu's ERNIE models haven't reached the same level of developer adoption or benchmark recognition outside China, which limits their cloud business upside.

JPMorgan analysts struck a more optimistic note, writing that "Baidu is moving into a phase where the contours of its AI-led transition are becoming more visible." But even their bullish case acknowledges the company is in a transition phase, not at the destination.

So What?

Baidu's earnings tell a story that extends beyond one company. China's AI sector is bifurcating between well-funded startups building pure AI businesses from scratch and legacy tech giants trying to pivot from dying revenue streams. For investors, the question is whether Baidu's $42 billion cash pile and established infrastructure give it enough runway to complete the transition before its advertising business hollows out completely. The market, having erased $11 billion in a month, has given its preliminary answer.

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