Key TakeawaysBaidu shares plunged more than 12% following second-quarter revenue of 31.33 billion yuan that fell short of analyst projectionsAdvertising revenue tumbled 19% compared to the previous year, marking the eighth consecutive quarterly decline dating back to Q2 2024Morgan Stanley shifted its rating on BIDU to Underweight from Equal-Weight while reducing the price target by 38.5% to $80Barclays reduced its target price to $96 from $124 while keeping its Equalweight stance unchangedDespite AI cloud revenue climbing 50% and GPU Cloud sales soaring 283%, these gains failed to compensate for advertising headwindsShares of Baidu ended Tuesday’s trading session at approximately $90.87, sliding roughly 12% following the release of second-quarter financial results that left investors disappointed. The Chinese tech giant’s stock has now lost more than 30% of its value year-to-date and is hovering close to its 52-week low of $84.82.Baidu, Inc., BIDUSecond-quarter revenue totaled 31.33 billion yuan ($4.62 billion), representing a 4% year-over-year decrease and falling short of the 31.95 billion yuan consensus estimate. Adjusted earnings per American depositary share plummeted 47% to $1.06, well below analyst expectations of $1.38.The primary culprit behind the disappointing results was the company’s online advertising segment. Revenue from this division plunged 19% to 13.1 billion yuan ($1.94 billion) as advertisers in China reduced their marketing budgets. This represents the eighth consecutive quarter of year-over-year contractions in search advertising revenue, a streak that began in Q2 2024. The pace of deterioration has now intensified to approximately 20% annually.The company also made a strategic decision to restrict monetization of its latest AI-enhanced search features throughout the quarter, choosing to emphasize user satisfaction over immediate revenue generation. This approach negatively impacted the quarter’s financial performance.Wall Street Analyst Turns BearishMorgan Stanley analyst Gary Yu wasted no time responding to the earnings report. He downgraded BIDU to Underweight from Equal-Weight while slashing the price target by 38.5%, bringing it down from $130 to $80. This new target suggests potential additional downside of approximately 12% from current trading levels.Yu revised his core revenue projections for 2026 through 2028 downward by 1% to 9% and reduced non-GAAP operating profit estimates by 6% to 31%. The investment bank cited deteriorating sales performance and escalating AI-related investments as primary concerns, with minimal improvement anticipated during the latter half of 2026.Capital expenditures nearly doubled compared to the previous quarter, reaching 11.39 billion yuan, which pushed free cash flow into negative territory at 7.95 billion yuan ($1.18 billion). This substantial spending level intensifies pressure on Baidu to demonstrate that its artificial intelligence initiatives can ultimately compensate for declining advertising revenues.Barclays similarly lowered its price objective, adjusting it to $96 from $124, while maintaining its Equalweight rating. The firm expressed skepticism that advertising revenue declines will decelerate in the near term and cautioned that ongoing AI investments will continue pressuring operating margins throughout upcoming quarters.Artificial Intelligence Division Shows PromiseThe company’s AI operations delivered more encouraging results. Baidu’s AI cloud revenue expanded 50% year-over-year, while GPU Cloud revenue skyrocketed 283%. The overall AI business generated revenue of 12.5 billion yuan ($1.85 billion), up 25% from the prior year.Barclays observed that Baidu has fallen behind rivals in developing advanced large language models and has recently recruited AI specialists to narrow this competitive gap.Morgan Stanley anticipates AI cloud infrastructure revenue will accelerate to 66% year-over-year growth in upcoming periods, surpassing the previous quarter’s 50% expansion rate.However, despite the positive AI momentum, the company’s new AI-powered marketing solutions demonstrated minimal advancement during Q2, remaining essentially unchanged throughout the quarter.According to TipRanks, the Street’s consensus rating on BIDU stands at Moderate Buy. Among 7 analysts providing coverage, 4 recommend Buy, 2 suggest Hold, and 1 advises Sell, with an average two-month price target of $148.86.The post Baidu (BIDU) Stock Plunges 13% Following Disappointing Q2 Results and Analyst Downgrade appeared first on Blockonomi.