Chinese search engine giant Baidu (9888.HK) reported a 7% decline in quarterly revenue in the third quarter of 2025, weighed down by weaker advertising demand, even as its cloud and artificial intelligence divisions continued to show strong growth.

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Financial Highlights

Baidu posted total revenue of 31.17 billion yuan ($4.38 billion) for Q3, slightly above market expectations of 30.7 billion yuan, according to LSEG data.

• Online advertising revenue: 15.3 billion yuan, down 18% year-over-year, reflecting reduced marketing budgets amid economic uncertainty.
• Non-advertising revenue: Up 21% to 9.3 billion yuan, driven largely by the cloud and AI businesses.
• Net income: Baidu recorded a net loss of 11 billion yuan, compared with a profit in the same period last year, primarily due to asset write-downs.

The company’s U.S.-listed shares showed little movement in premarket trading following the report.

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Advertising Weakness Amid Economic Challenges

Baidu’s advertising business, which forms the core of its revenue, faced significant headwinds due to a sluggish Chinese economy, exacerbated by a struggling property sector and ongoing U.S.-China trade tensions. Reduced consumer spending has prompted advertisers to scale back technology budgets, directly impacting Baidu’s marketing-driven revenue streams.

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Cloud and AI Drive Future Growth

Despite the advertising downturn, Baidu’s cloud and AI divisions remain bright spots for the company. Revenue from cloud and non-marketing businesses rose 21%, reflecting growing demand for AI solutions and enterprise adoption of large language models.

Baidu is aggressively integrating artificial intelligence into its search platform, aiming to become the leading provider of AI-powered search in China. Its flagship Ernie large language model is being upgraded with advanced reasoning capabilities, while the company recently unveiled new AI chips designed for model training and inference, supporting the rapidly increasing compute demands in AI.

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Competitive AI Landscape in China

Baidu faces stiff competition in the AI market from rivals such as Alibaba (9988.HK) and DeepSeek, prompting significant investments in R&D and AI infrastructure. The company’s strategy focuses on leveraging its AI and cloud capabilities to offset declining advertising revenue and position itself as a dominant force in the Chinese AI ecosystem.

Analysts note that Baidu’s combination of AI, cloud, and search services could provide a diversified revenue base, mitigating the cyclical nature of advertising income and strengthening long-term growth prospects.

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Outlook

Baidu’s Q3 results highlight the challenges facing Chinese tech companies, including macroeconomic pressures and a competitive digital advertising landscape. At the same time, the strong growth in AI and cloud services underscores the potential for innovation-driven revenue expansion, particularly as businesses increasingly adopt AI-powered solutions.

Investors will be closely watching Baidu’s continued investment in AI search, enterprise cloud, and high-performance computing as indicators of its ability to sustain long-term growth despite advertising headwinds.