Baidu to focus more on AI as slowing economy, shrinking ad budgets hit revenue

Baidu said Wednesday that second-quarter sales weakened as cautious marketing budgets in a slowing Chinese economy hit its main business, while its cloud arm continued to expand.

For the quarter ended June 30, revenue totaled 32.71 billion yuan ($4.56 billion), a decline of 4% from a year earlier and slightly under the 32.76 billion yuan consensus from LSEG. Adjusted profit came in at 13.58 yuan per American Depositary Share, exceeding the 13.12 yuan forecast. The company’s U.S. shares were up 1.3% in premarket trading.

A property slump, soft hiring and uneven consumer demand have led many Chinese firms to trim advertising to protect margins. That retrenchment has weighed on Baidu’s search ads, a core earnings driver.

The online advertising unit, normally around 60% of group sales, fell 15% to 16.2 billion yuan ($2.3 billion) in the April-June period according to Reuters.

AI cloud growth eases impact of weak ads

Other lines helped offset the slide. AI-driven cloud services lifted non-online advertising revenue by 34%. Baidu has been investing heavily in artificial intelligence and, last month, introduced what it described as the biggest search interface refresh in a decade.

New AI tools are arriving alongside the redesign. The company rolled out MuseSteamer, a video generator for enterprise users, and released an open-source variant of its Ernie model. Those steps come as Baidu faces rising competition from players such as DeepSeek, which earlier this year drew attention with lower-cost models.

Recent updates also aim to bring more AI into its search. As Cryptopolitan reported earlier, Baidu said its mobile search experience will behave more like a chatbot to help with creative tasks and organization. The service will emphasize natural-language queries over strict keywords and add voice support across multiple Chinese dialects.

Analysts support AI strategy amid pressure

“There has been some small pressure on the search business, but the focus on AI and Ernie Bot is a key move ahead. Baidu is not waiting around to watch the paint dry, full steam ahead on AI,” said Dan Ives, global head of  Wedbush Securities.

Leaders inside the company say the goal is to outdo Baidu’s own past versions rather than simply outpace competitors, according to search chief Zhao Shiqi.

Baidu remains China’s largest search provider, but some users have shifted time to AI assistants like DeepSeek and ChatGPT. Short-video platforms such as Douyin and Kuaishou are also layering in AI features, increasing competition for user attention and ad yuan.

The slowdown in ads has been visible for four straight quarters in online marketing revenue. Management maintains that the heavier tilt toward AI should, over time, improve ad outcomes and stabilize growth.

The search revamp expands what people can do on the platform. Queries can now run to more than a thousand characters, up from a previous cap of 28. Users can ask questions in conversational language, attach images or files to guide results, and request generated photos or videos. Voice search is built in as well.

Overall, the quarter shows how weaker macro conditions are pressuring digital ads in China even as Baidu leans on cloud and AI-forward products to navigate the slowdown. Investors will be watching to see if the new tools help bring ad demand back.

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