China’s Baidu revenue falls 4% as AI cloud growth fails to offset ad weakness

China’s largest search engine operator Baidu reported 4% revenue drop for its December quarter on Thursday, as persistent weakness in its mainstay advertising business offset strong growth in its cloud business.

Baidu, like other tech giants in China, has invested heavily in building out its artificial intelligence capabilities, helping the tech firm capture enterprise demand as companies increasingly adopt AI to speed up operations and productivity.

U.S.-listed shares of Baidu were down nearly 4% in premarket trading.

Strength in its cloud business has partley helped Baidu offset weakness in its advertising unit – its primary revenue generator — which has struggled to rebound in a highly competitive ad market. Weak consumer demand and a prolonged property-sector crisis have hobbled China’s economy, denting advertiser spending.

Revenue from Baidu’s core AI-powered business, which includes its cloud infrastructure unit, AI applications and robotaxi division, jumped to 11 billion yuan  ($1.61 billion) in the fourth quarter and accounted for 43% of the company’s general business revenue.

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AI has become the “new core of Baidu,” said Baidu CEO Robin Li, adding that the company’s cloud services were gaining increasing enterprise recognition while its AI apps such as the Miaoda vibe-coding platform have gained traction among users.

Baidu Chief financial officer Henry He said on a post-earnings call that Baidu would maintain its pace of AI investment, which has totalled more than 100 billion yuan over the past three years.

The company reported total revenue of 32.74 billion yuan for the quarter ended December, compared with analysts’ average estimate of 32.62 billion yuan, according to data compiled by LSEG.

Its net income for the quarter was 1.8 billion yuan with earnings per share at 10.62 yuan, compared with analyst’s estimate of 9.25 yuan.

Earlier this month, Baidu announced a new $5 billion share repurchase program and its first-ever dividend policy, highlighting increased focus on shareholder returns. The company said on Thursday it expects to pay out its first dividend by the end of this year.