Baidu's Moment of Transformation: AI Revenue Supports Half the Company for the First Time, Profits Still Passing the Test

Baidu is experiencing the “painful moment” of its AI transformation. On May 18, Baidu released its Q1 2026 financial report, showing total revenue of 32.1 billion yuan, a slight year-on-year decline of 1%; net profit attributable to Baidu in the same period was 3.445 billion yuan, shrinking by more than half year-on-year. The main reason for this significant drop in profit is the contraction of high-margin businesses and the reduction of “non-operating income” such as investments. On one hand, in Q1 2026, Baidu’s online marketing service revenue was 12.6 billion yuan, a year-on-year decline of 22%. In contrast, revenue from cloud and other AI-related businesses grew rapidly, but cloud business naturally requires greater investment in computing power, servers, bandwidth and other costs, and its short-term profit flexibility is weaker than that of the advertising business. On the other hand, due to fair value gains and long-term investment profits, Baidu recorded “other gains” of up to 4.487 billion yuan in Q1 2025, but this figure plummeted to 626 million yuan in Q1 2026. Overall, this significant profit decline is an inevitable “growing pain” in Baidu’s transformation period. In the past, Baidu relied heavily on high-margin businesses like search advertising; now, “core new AI business” driven by computing power and heavy investment is taking the lead in revenue growth, which will inevitably compress profit margins in the short term. However, looking at the revenue structure, Baidu’s business still has highlights, and the most eye-catching is definitely the AI-related business. In Q1 2026, Baidu’s AI business revenue was 13.6 billion yuan, accounting for 52% of general business revenue. This is the first time AI business has supported half of total revenue. “In Q1, Baidu’s AI business revenue accounted for more than half of general business revenue for the first time, indicating that AI has become Baidu’s core driving force,” said Baidu founder Robin Li. Specifically, in Q1 2026, AI cloud generated 8.8 billion yuan in revenue, up 79% year-on-year; AI applications generated 2.5 billion yuan, basically flat compared to previous periods. It’s worth noting that Baidu continues to focus heavily on AI applications. At the recently held Create2026 conference, Baidu released and upgraded a series of Agents for different domains—including Code Agent Miaoda, Digital Human Agent Baidu Yijing, and Famu 2.0 for enterprise core decision-making—along paths like personal creation, software development, content production, and industry decision-making. From this perspective, Baidu is trying to push AI applications from point tools towards a more complete productivity portal, enabling applications to enter real work, production, and decision-making scenarios. Although Q1 financials show commercialization of Baidu’s AI applications is still at an early stage, if these applications can establish stable usage scenarios, they could open up new business opportunities. In summary, Baidu is currently at a stage where traditional advertising is shrinking, AI cloud is scaling up first, and Agent applications are paving the way. As Baidu advances its AI business, whether its AI narrative can truly achieve “commercial realization” is drawing attention. Risk disclosure and disclaimer The market carries risks, and investment should be prudent. This article does not constitute individual investment advice and does not take into account particular investment goals, financial circumstances, or needs of individual users. Users should consider whether any opinions, viewpoints or conclusions herein suit their particular circumstances. Investing based on this article is at your own risk.