Morgan Stanley Downgrades Baidu Amid Struggling Core Business
Morgan Stanley has downgraded its rating on Chinese internet company Baidu from equal-weight to underweight, citing ongoing struggles in the core advertising business. The firm also reduced its price target for Baidu's stock to $80 from $130, implying a potential 12% downside risk based on recent performance. Analyst Gary Yu highlighted that while AI-related cloud infrastructure revenue is expected to grow quarter-over-quarter, the core ad segment continues to decline year over year by nearly 19%, with limited signs of recovery in the second half. Baidu's Q2 financial results were weaker than anticipated, contributing to a stock price drop exceeding 12%. Earnings per diluted share came in at 7.22 yuan ($1.07), below analyst expectations of 9.35 yuan ($1.38). Revenue also missed forecasts by about $64 million USD. Despite significant investments into AI, which are expected to continue weighing on short-term earnings, Morgan Stanley believes the monetization potential is still in early stages and unlikely to significantly impact financials soon. The downgrade contrasts with broader Wall Street sentiment; 27 of the 32 analysts covering Baidu have a buy or strong buy rating. However, shares are down roughly 30% year-to-date amid ongoing uncertainty about when core business performance might improve.
Topics: AI investments Baidu core business performance Morgan Stanley downgrade