HSBC Research lowers Baidu's target price to $84, maintaining a "Hold" rating

HSBC Global Research published a report stating that Baidu-SW (09888.HK)(BIDU.US) exceeded expectations in cloud service revenue in the first quarter of this year. It believes that after the initial strong growth brought by the Deepseek breakthrough, the growth rate in subsequent quarters will normalize. The slowdown in cloud service growth, combined with conservative assumptions about the growth of high-margin advertising business, is expected to jointly drag down profit margin performance. Therefore, the bank has lowered its non-GAAP net profit forecast for Baidu from 2025 to 2027 by 4%-10%, and the target price for Baidu (BIDU.US) has been reduced from $92 to $84, indicating about a 6% downside from the current stock price. Given the long-term growth potential of AI monetization and autonomous taxi business, HSBC maintains a "Hold" rating.

The report mentioned that AI cloud service revenue grew by 42% year-on-year to 6.7 billion RMB. The enterprise cloud business remains the main source of revenue, with growth outpacing personal cloud services. Within the enterprise cloud segment, project-based revenue is volatile, but rapidly growing subscription revenue has become the largest contributor to enterprise cloud income. In subscription revenue, cloud service revenue related to Generative AI (GAI) has maintained a triple-digit growth rate for several consecutive quarters. The non-GAAP operating profit margin of the AI cloud business has reached a low of around 10%, and as the business structure shifts towards high-margin products, it is expected that the healthy profit margin of this segment will gradually improve.

Additionally, HSBC Research continues to be optimistic that Baidu's losses will narrow rapidly in 2025