Morgan Stanley believes Baidu’s stock has become a bit pricey after its recent rally, even though the firm kept its “Equal-Weight” rating. The brokerage did raise its price target, setting a new discounted cash flow estimate at $140 per share and introducing a sum-of-the-parts valuation that goes up to $220. This higher figure reflects Baidu’s growing focus on AI cloud services and its own AI chips.
Analysts at Morgan Stanley expect Baidu’s main advertising business to stay under pressure. They noted that AI-powered search results now make up about 64% of total ad impressions as of July, but these ads earn less money than traditional search ads. The firm predicts Baidu’s core ad revenue could drop by around 15% in 2025. However, newer forms of ads, such as digital, human, and AI agent-driven ads, may help soften the decline, already accounting for about 16% of total ad revenue in the latest quarter.
In the cloud division, personal cloud services are estimated to contribute about 30% of total cloud revenue, with AI-driven upgrades fueling more growth. Enterprise cloud subscriptions remain the main driver of overall expansion.
Morgan Stanley also highlighted Baidu’s partnerships, including its work with Apple on AI features in China and its collaboration with China Mobile on AI chip development through a 1 billion yuan investment in the Kunlun chip. These partnerships are expected to help Baidu’s AI cloud revenue rise by about 32% in fiscal year 2025.
Baidu’s self-driving car business, Apollo Go, has completed over 2.2 million driverless rides across 16 cities worldwide. The company is expanding its operations into the Middle East, Europe, Southeast Asia, and Australia. In Wuhan, the service has already reached the point of breaking even, though Morgan Stanley says it still won’t have a big financial impact in the short term.
Looking further ahead, Morgan Stanley increased its revenue and earnings forecasts for 2026 and 2027 by 3–5%, mainly due to stronger cloud growth and management’s promise to improve shareholder returns. The firm’s valuation breakdown assigns $40 per share to Baidu’s advertising business, $80 to its cloud operations, $30 to autonomous driving, and $70 to net cash and other investments.
Overall, the analysts noted that Baidu’s stock is currently trading at about 17 times its projected 2026 earnings, which aligns with their valuation estimates. This supports their view that while Baidu’s long-term AI potential is strong, the stock’s current price already reflects much of that optimism.
