J.P. Morgan significantly raised Baidu's target price: The market has severely underestimated the speed of AI transformation, Kunlun chip sales may soar sixfold next year, driving cloud business growth by 61%.

JPMorgan has upgraded Baidu's rating and target price. Analysts believe the market has seriously underestimated the speed and scale of Baidu's AI transformation. Thanks to the growth in Kunlun chip sales, the company's cloud business revenue is expected to grow by 61% in 2026.

According to information from Chasing Wind Trading Desk, a JPMorgan report on November 23 stated that Baidu's investment narrative is undergoing a fundamental shift: the company is transitioning from a traditional search advertising firm to an AI infrastructure provider. Sales of Kunlun chips and demand for GPU computation are expected to drive a significant acceleration in revenue growth.

Kunlun Chip Sales Will Increase Significantly

JPMorgan predicts that Baidu's Kunlun chip revenue will surge from about RMB 1.3 billion in 2025 to RMB 8.3 billion in 2026, a six-fold increase.

This forecast is based on a structural shift where China's top cloud service providers are accelerating the purchase of domestic AI accelerators: Starting in 2025, China's major hyperscale cloud service providers including Baidu, Alibaba, Tencent, and ByteDance will accelerate the procurement and deployment of domestic AI accelerators, moving from pilot applications to large-scale, multi-vendor procurement.

The Baidu Kunlun project has become a core validation case for scaled domestic demand. In April, Baidu unveiled a 30,000-piece P800 training cluster; more crucially, the solution has been adopted externally by Chinese banks and internet companies, confirming that Kunlun chips are not only feasible internally but are also gaining traction for enterprise-level workloads.

GPU Computing Revenue Will Maintain Triple-Digit Growth

JPMorgan expects Baidu's GPU computing revenue (subscription-based AI cloud infrastructure revenue) to double in 2026. Q3 GPU leasing subscription revenue grew 128% year-on-year, further accelerating from about 50% in the previous quarter.

Analysts say that starting from 2025, Baidu's cloud business has clearly shifted to an AI-first and GPU-intensive growth phase. AI cloud revenue grew 26% year-on-year in Q4, accelerated to 42% in Q1, and maintained strong growth of 27% and 21% in Q2 and Q3, respectively. During this period, AI cloud has grown to account for about a quarter of Baidu's core revenue, becoming the main growth engine.

In the Q1 large-language-model bidding market, Baidu Intelligent Cloud won 19 projects, leading with a total bid amount of about RMB 450 million, ahead of other major model providers. These contracts typically involve multi-year projects deploying generative AI applications on Baidu AI Cloud, securing future revenue streams for GPU and accelerator usage.

Traditional Advertising Business Faces Structural Adjustment

Although AI marketing services continue to expand rapidly, JPMorgan is relatively cautious about the outlook for Baidu's advertising business.

JPMorgan expects AI-native marketing services revenue to grow 55% year-on-year in 2026, but traditional search advertising revenue will keep declining by double digits year-on-year.

Analysts state that Q3 saw about a 30% drop in traditional search and feed advertising revenue. AI-native marketing services achieved 262% year-on-year revenue growth in Q3, accounting for 18% of Baidu's core ad revenue, but these AI-native formats are eroding traditional search ad income.

JPMorgan expects Baidu's core ad revenue to fall by 7% year-on-year in 2026. The report emphasizes that the catalyst for re-rating will come from cloud/AI infrastructure growth, not a rebound in traditional ad business.

Asset Impairment Will Significantly Improve Profitability

JPMorgan believes the RMB 16 billion asset impairment in Q3 will have a direct and substantial positive impact on Baidu's core profitability in 2026-27.

Assuming the remaining useful life of the impaired hardware/CPU is two years, analysts expect annual depreciation expenses to decrease by about RMB 8 billion each year in 2026 and 2027, correspondingly increasing adjusted operating profit by RMB 8 billion.

This will improve the group's adjusted operating margin by 5 percentage points in 2026, and Baidu's core adjusted operating margin by 7 percentage points.

Analysts believe the impairment is part of a strategic effort to align the company's asset base with its revenue-generating capacity, specifically by disposing of traditional CPU equipment to focus on high-performance computing assets such as GPUs.

Given the more promising prospects and early monetization stage of Baidu's AI cloud, JPMorgan has shifted its valuation methodology from group-level blended P/E ratio to sum-of-the-parts (SOTP) valuation. The report values total ad business at $12 billion or $37 per share, based on 5x 2026 earnings multiple.

Baidu's cloud business is valued at $34 billion or $100 per share, based on a 6x 2026 revenue multiple for cloud (excluding Kunlun chip sales), and a 15x 2026 revenue multiple for Kunlun chips. This valuation framework produces a $188 target price for December (70% upside potential).

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The above content was sourced from Chasing Wind Trading Desk.

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