Morgan Stanley research reports stated that Baidu (09888.HK) (BIDU.US) recorded a 19% year-on-year decline in adjusted net profit in the third quarter, 7% lower than market expectations. Core advertising revenue fell by 5% year-on-year to 18.8 billion Chinese yuan, reflecting a widening decline, indicating that the business is facing headwinds. Consequently, earnings per share forecasts for the next two years are revised down by 8% and 20%.

Considering the uncertain macro outlook and lack of progress in commercialization, Morgan Stanley currently predicts that Baidu's adjusted net profit in 2025 will decline by 4% year-on-year. The target price has been reduced from 122 yuan to 83 yuan, corresponding to a decrease in the 2025 forecasted P/E multiple from 8 times to 5 times.

The bank believes that Baidu may benefit from the recovery in advertising and search demand, but macro uncertainties limit its short-term upside potential. It is expected that AI development can still be a longer-term growth driver for the company.