Morgan Stanley has issued a sell rating for Baidu, citing persistent weaknesses in the company’s core business operations. The investment firm downgraded the stock from equal-weight to underweight, slashing its price target from $130 down to $80. This adjustment reflects a 12 percent projected downside from recent closing figures.
Analyst Gary Yu highlighted that the company's core advertising revenue dropped by 18.5 percent year-over-year. Despite expected improvements in AI cloud infrastructure, the core ad business shows few signs of recovery for the remainder of the year. Operating profits are anticipated to drop further throughout the third quarter as Baidu increases its spending on talent, model upgrades, and computing power.
Baidu’s recent second-quarter financial results missed expectations, causing shares to fall by more than 12 percent. The company reported earnings of 7.22 yuan per diluted share against analyst expectations of 9.35 yuan. Total revenue of 31.33 billion yuan also came in below the projected 31.78 billion yuan.
While Morgan Stanley recognizes the long-term potential of the firm's AI investments, the bank warns that monetization remains in the early stages. Financial gains from these initiatives appear unlikely to materialize in the immediate future. This move by Morgan Stanley stands in contrast to the broader Wall Street consensus, as 27 of the 32 analysts covering the firm maintain buy or strong buy ratings on the stock. Shares of the company have declined approximately 30 percent since the beginning of the year.