AI business revenue accounts for up to 43% of total revenue, Baidu-SW (09888) has entered the payback period.

As we enter 2026, the investment logic of global capital markets towards the AI industry has quietly undergone a profound shift. If in 2024-2025 AI was still in the stage of "storytelling" and vision painting, the market has now entered a phase of practical validation that demands a closer look at the numbers. Investors are realizing that the arms race among tech giants in the AI field is turning into a protracted war of attrition. For example, global leaders like Google, Amazon, Microsoft have planned capital expenditures amounting to several hundred billion dollars over the next few years. However, the question of when these astronomical investments will clear profit curves remains unclear. Instead, they continue to erode current cash flows and blur short-term profit expectations, becoming a lingering concern for the market. Against this backdrop, Baidu's financial reports for the fourth quarter of 2025 and the full year naturally became the focus of the market's attention. Baidu's performance not only serves as a comprehensive test of its AI commercialization capabilities but is also a key window to observe the efficiency of China's and even the global AI industry's transformation from technological value to commercial value. On February 26, Baidu presented the market with a better-than-expected financial report showcasing its leading AI commercialization capabilities. The data revealed that Baidu's total revenue in 2025 reached 129.1 billion yuan, with AI business revenue reaching 40 billion yuan. Of note is that, for the first time in the report, Baidu disclosed a key piece of information, the revenue contribution of AI business. In the fourth quarter, Baidu's total revenue was 32.7 billion yuan, and the revenue from the AI business accounted for 43% of Baidu's total revenue, exceeding market expectations. This surpassing percentage sent a clear signal to the market: Baidu's "technology-business" closed loop built on full-stack AI capabilities has received initial validation, and Baidu's AI development trajectory is steadily moving from a "cost investment period" to a sustainable "revenue realization period"AI is starting to generate real income in several of Baidu's businesses. More importantly, these revenues are not dependent on short-term traffic or subsidies, but are derived from the actual payment of money by enterprises and users for real effects and value, reflecting the healthiness and intrinsic growth momentum of Baidu's AI business model. Based on this, as a key player in leading the commercialization of AI in China, Baidu's valuation logic in the capital market is expected to be reshaped. Its "technology-business" closed loop not only brings more certain growth prospects but also signifies its entry into a virtuous cycle of technology-driven, revenue-verified growth, which will be the beginning of the company's long-term intrinsic value acceleration. Full-stack layout + precise strategic positioning create an efficient commercialization flywheel While maintaining the construction of long-term core competitiveness, how to strike a balance between high-intensity investment and verifiable commercial outputs is a strategic challenge faced by high-tech companies in general. The long-term prospects of the AI industry in the capital market are solidified, but there lacks a clear time anchor and measurement criteria for when AI companies can achieve scalable outputs. This uncertainty is the fundamental reason why the capital market has shifted from pricing for "vision" to pricing for "realization". The reason why Baidu has been able to achieve outstanding results in AI commercialization is crucial to its choice of a differentiated and systematic development path. Technologically, as one of the few companies in China and even globally that has laid out a full-stack self-built layout in "core (chips)-cloud (cloud services)-model (models)-intelligence (intelligent entities)", Baidu has achieved a synergistic effect of "1+1>2" through the deep coupling of technologies at various layers. This not only brings significant advantages in performance, cost, and iteration speed but also builds a core infrastructure and ecosystem that is difficult to imitate and supports long-term competition. Strategically, Baidu is not limited to "model competitions" but is steadfastly promoting the deep integration of technology and industry. With over a decade of deep cultivation in the AI field, Baidu has already recognized the limitations of simply increasing the scale of "model parameters", and has chosen a more practical development path focusing on the scale application of AI technology and deep integration with industries. Following the surge in generative AI waves caused by ChatGPT, Baidu was the first in China to rapidly launch large-scale model Wen Xin Yi Yan, and has fully integrated large-scale model capabilities into its business lines, making it the most thorough enterprise in using AI to reconstruct existing businesses in China. The combination of precise strategic positioning and full-stack technology has created an efficient commercialization flywheel. At its core, Baidu's long-term investment in fundamental technologies can be reused in B-end (cloud and solutions, etc.), C-end (search and AI applications), and even in diverse scenarios such as Robotaxi, resulting in significant economies of scale and cost-effectiveness. This fundamentally drives sustainable growth and scalable output of AI business, which is also clearly evident at various levels of business. AI becomes the core of growth, driving a transformation in diverse business paradigms From the B-end perspective, AI Cloud continues to grow, with revenue in 2025 growing by 34% year-on-year. In particular, in the fourth quarter, the subscription revenue for high-performance AI computing facilities grew by 143% year-on-year, further accelerating from the 128% in the third quarter. In the real business competition, Baidu Intelligent Cloud has also demonstrated strong market competitiveness. According to statistics on major cloud suppliers' large model-related projects in China in 2025, Baidu Intelligent Cloud has been the industry leader in both the number and total amount of bidding projects for two consecutive years. At the C-end, the growth of Baidu's AI is not only reflected in user scale but more crucially in users beginning to pay for the real productivity value of AI, which directly drives AI application revenues surpassing 10 billion yuan in 2025. For example, Wen Xin Zhu Zhu MO has exceeded 200 million monthly active users, together with Dou Bao and Qian Wen, forming the top three AI super portals in China, reflecting wide market recognition of its capabilities. After the launch of the Spring Festival red envelope campaign, its monthly active users grew fourfold year-on-year, further confirming the product's capabilities. At the same time, in empowering individual and industry productivity, Baidu's AI capabilities have achieved deeper implementation and value release through "Second Da" and "GenFlow 3.0". The upgraded Second Da 2.0 can achieve full-stack applications to help ordinary users build production-level applications. Since its launch eight months ago, the platform has generated over 500,000 commercial applications, with a daily growth rate of over 150%, covering over 200 scenarios including education, business, content creation, and enterprise services, creating a total value of over 5 billion yuan in economic and efficiency value. As of now, the applications generated by Second Da have served over 10 million users and nearly 100,000 people are using these applications to solve real problems every day. GenFlow 3.0 released by Baidu Wenku Wangpan as the world's first all-mode, all-end general intelligent entity, now has over 20 million active users, reflecting Baidu AI's evolution from "functional realization" to "understanding intent and active service". Furthermore, Luobu Kuaipao, as the most direct grounding verification of physical AI, is the most remarkable sector showcasing Baidu's leading advantage, achieving outstanding performance during the reporting period as well. Data shows that in the fourth quarter of 2025, Luobu Kuaipao's global travel service reached 3.4 million times, with a year-on-year increase of over 200%, and a peak order volume exceeding 300,000 orders in a single week during the quarter. As of February 2026, Luobu Kuaipao has provided over 20 million orders for autonomous driving travel services for the public. The rapid growth of the business is due to its accelerated global deployment and solid operational layout. During the reporting period, Luobu Kuaipao initiated commercial operations of fully driverless vehicles for the public in Abu Dhabi. In the European market, it has partnered with Uber, Lyft, planning to start driverless testing and services in London in 2026. In Dubai, a core market in the Middle East, Luobu Kuaipao obtained the first local fully driverless testing permit on January 6, paving the way for commercial operations in the first quarter and planning to expand the fleet size to over a thousand vehicles. On the same day, Luobu Kuaipao's first integrated base for driverless operations, maintenance, control, and training overseas was officially put into use in Dubai, providing core support for fleet-based operations. According to Frost & Sullivan's forecast, the global Robotaxi market size will grow from $290 million in 2025 to $66.6 billion in 2030 and reach $352.6 billion in 2035, showing an explosive growth trend in the market. With significant technological and first-mover advantages, Luobu Kuaipao is not only set to fully benefit from the explosive growth of the global driverless industry but is also poised to become the core engine driving Baidu's continued growth in the medium to long term. This means that, with full-stack AI capabilities as the cornerstone, after Baidu has provided its business lines with cross-scenario deep restructuring and integrated empowerment, it not only enhances the resilience of each business but also fundamentally changes the overall growth paradigm of the companyfrom traditional business-driven to AI-core-driven, high-value, and sustainable growth model. This signifies that AI-related businesses have not only achieved scalable growth but have also become the core pillar of Baidu's continued development, consolidating its strategic position. This is also the key reason why Baidu has announced its AI business revenue and ratio data. Multiple catalysts accelerating the reshaping of valuation logic, with a target price of over $200 on US stocks If the progress of AI commercialization surpassing market expectations is expected to drive a reshaping of Baidu's investment and valuation logic in the capital market, then Baidu's actions in the capital market are likely to accelerate this process. Two major events since 2026 have clearly conveyed Baidu's determination to reward shareholders and increase value. Firstly, on February 5, Baidu announced that the Board of Directors approved a new share repurchase plan, with a total amount not exceeding $5 billion. It is noteworthy that the repurchase amount of $5 billion accounts for approximately 10% of the company's current US stock market value, far exceeding market expectations. For comparison, technology giants with abundant cash flows like Apple and Google typically have annual share repurchase scales ranging from 2% to 4% of their market values. Even Meta, which has a more aggressive buyback strategy, has historically peaked at around 5%. In contrast, Baidu's repurchase proportion exceeding 10% suggests that the company's value is currently undervalued. While announcing the repurchase of $5 billion worth of shares, Baidu also stated that it will distribute dividends for the first time in 2026. Industry analysts point out that this combination of a "large repurchase" and the first dividend payout marks a new stage for Baidu in focusing on profit realization and shareholder value feedback, and the key reason behind this is that Baidu's AI commercialization has brought healthy cash flows. Secondly, Baidu officially announced on January 2 that Kunlun Xinyu had submitted an application for listing to the Stock Exchange and had been approved to proceed with the spin-off. This move indicates that Baidu's AI strategy has entered a stage of deepening and harvesting, not a simple asset divestment but an active strategic restructuring and value release. For Baidu, once Kunlun Xinyu is independently listed, it is expected to obtain a more focused development platform through the capital market, further consolidating Baidu's long-term competitive advantage in full-stack AI. Meanwhile, the value of Kunlun Xinyu will be independently priced in the public market, significantly increasing the overall valuation of Baidu's stake and achieving a market value management effect of "1+1>2". This will provide a clearer presentation of the AI platform value within Baidu. At that time, the market's valuation logic for Baidu will also evolvefrom a single price-to-earnings (PE) ratio perspective to a more comprehensive branch valuation method that can better reflect the overall value of its AI technology stack. With multiple catalysts such as the better-than-expected progress of AI commercialization, large-scale repurchases + dividends, and the independent listing of Kunlun Xinyu, Baidu's future value has already gained high recognition from top-tier brokerages and investment banks globally. Among them, Benchmark stated that a series of upcoming catalysts will help unlock the value of Baidu's undervalued assets and drive the systematic revaluation of the company through Sum-of-the-Parts (SoTP) valuation, with the spin-off listing of Kunlun Xinyu and the commercialization of Luobu Kuaipao being seen as core catalysts. Based on this, Benchmark raised Baidu's US stock target price for 2026 to $215, and considers Baidu to be one of the most potentially overperforming targets in the 2026 fiscal year. Furthermore, based on the branch valuation method (SOTP) calculation, J.P. Morgan raised Baidu's December target price to $200. It expressed optimism for the core beneficiaries of the Chinese AI infrastructure, with Baidu poised to become a winner in this wave of AI. J.P. Morgan believes that entering the fourth quarter of 2025, Baidu's AI-driven transformation outline is becoming increasingly clear: initial signs show that AI user penetration, integration of AI products with existing mobile Internet services, and operational efficiency are all improving. Baidu is beginning to transform its AI field investment into more sustainable operational growth momentum. Overall, with the progress of AI commercialization surpassing market expectations, the large buyback+dividend distributions, and the independent listing of Kunlun Xinyu, Baidu's future value has been highly recognized by top-tier brokerages and investment banks globally. As Baidu continues to demonstrate its commitment to rewarding shareholders and increasing value through strategic moves in the capital market, its position as a key player in AI commercialization and technology-driven growth is set to drive its stock price towards new heights.