Morgan Stanley downgraded Baidu to Underweight from Equal-Weight and cut its U.S.-listed share price target 38.5% to $80 from $130, implying about 12% downside from Tuesday’s close of $90.87. Analyst Gary Yu cited persistent weakness in Baidu’s core advertising business and rising investment in artificial intelligence. Baidu’s second-quarter revenue fell 4% to 31.33 billion yuan ($4.62 billion), missing the 31.78 billion yuan consensus estimate, while adjusted earnings per American depositary share dropped 47% to $1.06, below the $1.38 forecast. Online advertising revenue fell 19% to 13.1 billion yuan, marking an eighth consecutive quarter of year-over-year contraction in search advertising. AI cloud revenue rose 50% and GPU Cloud revenue jumped 283%, but total AI revenue of 12.5 billion yuan increased 25% and has not yet offset the advertising decline. Morgan Stanley also cut its 2026-2028 core revenue forecasts by 1% to 9% and non-GAAP operating profit estimates by 6% to 31%. Capital expenditure nearly doubled from the prior quarter to 11.39 billion yuan, sending free cash flow to a negative 7.95 billion yuan ($1.18 billion). Barclays separately cut its price objective to $96 from $124 while retaining an Equal-Weight rating. Baidu shares fell more than 12% after the results and are down roughly 30% this year, trading near their 52-week low of $84.82, despite most analysts retaining positive ratings.