For the first time, more than four of every ten yuan Baidu takes in comes from AI. The company’s AI-powered business grew 49% from a year earlier to 13.6 billion yuan in the first quarter, accounting for 42% of the company’s 32.1 billion yuan in total revenue — the first time a major Chinese internet company has drawn more than 40% of its revenue from AI. The results, reported Monday, beat analyst expectations, but the transition is squeezing profits.
The crossover is symbolic as well as financial. For the first time, Baidu’s core AI-powered business — AI Cloud and AI applications — exceeded half of Baidu General Business revenue, which reached 26.0 billion yuan in the quarter. “In Q1, our Core AI-powered Business exceeded half of Baidu General Business revenue for the first time, marking a clear signal that AI has become the core driver of Baidu,” Chief Executive Robin Li said in a statement.
Baidu Core’s AI-powered business revenue reached 13.6 billion yuan in the quarter, up 49% year over year. AI Cloud revenue climbed 53% to 11.3 billion yuan, with AI Cloud Infrastructure revenue up 79% to 8.8 billion yuan and GPU Cloud revenue accelerating 184% year over year. AI Cloud has now been the company’s fastest-growing major line for several consecutive quarters, and non-marketing revenue within Baidu Core grew 40% in the comparable period. Total revenue of 32.08 billion yuan topped analyst forecasts of 31.49 billion yuan, and adjusted earnings per American depositary receipt came in at 12.06 yuan against an 11.84 yuan consensus. Shares rose more than 2% in premarket trading as investors digested the mix shift.
The crossover is expensive. Net income fell 55% from a year earlier as Baidu poured capital into AI infrastructure — 5.9 billion yuan of capex in the quarter alone — while its highest-margin business shrinks. Online marketing services, the traditional cash cow, dropped 22% year over year to 12.6 billion yuan, an acceleration of a decline that was 18% in the third quarter of 2025 and 15% in the second. The dynamic is structural: AI-generated answers replace the static links that used to carry ad inventory, and the new AI monetization has not yet scaled enough to replace that revenue.
The result is a quarter with negative free cash flow of about 3.2 billion yuan, and operating income of 3.2 billion yuan for a 10% operating margin. Baidu’s operating cash flow of 2.67 billion yuan in the quarter was entirely consumed by the 5.9 billion yuan of capital expenditures. Management has said the spending is deliberate — capacity built now for the AI demand expected in coming quarters — and the balance sheet gives it room to absorb the transition: roughly $19.6 billion in net cash and $2.1 billion in cumulative buybacks. Research and development spending declined 22% quarter over quarter and 4% year over year, which Baidu attributed to lower personnel-related expenses, a sign the company is controlling headcount costs while directing capital into hardware.
Apollo Go, Baidu’s autonomous ride-hailing service, delivered 3.2 million fully driverless rides in the quarter, up more than 120% year over year, with cumulative rides exceeding 22 million across 27 cities. The unit is expanding internationally — into Switzerland, London and Dubai through partnerships with Uber and Lyft — making it Baidu’s most visible bet beyond search and cloud. On the earnings call, management sketched the next leg of the strategy: international robotaxi expansion through the Uber and Lyft partnerships, continued GPU Cloud buildout, and ERNIE-powered applications across its consumer products.
The legacy segments are pulling the other way. Streaming subsidiary iQIYI generated 6.23 billion yuan in revenue, down 13% year over year and short of the 6.43 billion yuan analysts expected, a reflection of the consumer weakness in the broader Chinese market. Adjusted operating profit still beat forecasts at 3.81 billion yuan versus 3.34 billion expected, and adjusted EBITDA reached 5.95 billion yuan.
Analysts following the quarter focused on the same tension Baidu itself concedes: AI is growing faster than advertising is shrinking, but the margin profile is inverted. Advertising revenue carries near-zero incremental capital cost; cloud and GPU capacity require continuous spending. The result is a race between two curves — AI revenue compounding against an advertising decline that is steepening — and the first quarter showed both curves moving in their respective directions.
Baidu is the first Chinese internet major to push AI revenue past 40% of total revenue, a threshold that redefines how the company should be valued: less as a search business with an AI project attached, and more as an AI infrastructure company with a shrinking search cash cow. The quarter shows the trade clearly — 49% growth in AI revenue against a 22% decline in online marketing. The question for the second half of 2026 is whether GPU Cloud and AI Cloud growth can outpace the ad decline far enough to restore profitability. For investors, the 42% threshold is a marker, but the path back to positive free cash flow will determine whether the market treats Baidu as a growth story or a restructuring story.
