Shares of Baidu Inc. (BIDU) slipped after the company reported its fourth-quarter results. It's one of those classic tech stories: the old business is slowing down, but the new, shiny thing is growing like crazy. The question is whether the new thing can grow fast enough to make up for the old thing.

The company reported quarterly revenue of $4.682 billion (32.7 billion Chinese yuan), a decrease of 4% year-on-year. That just barely edged past the analysts' consensus estimate of $4.680 billion. So, a miss on the top line, but not by much. The story here, according to reports, is that China's largest search engine is still grappling with a soft advertising market. That's the old business. The good news is buried a bit deeper in the report.

While revenue was down year-over-year, it actually rose 5% compared to the previous quarter. The company says that bump was "primarily due to an increase in Baidu Core AI-powered Business." So, the AI engine is starting to turn over. On the bottom line, the picture was brighter. Baidu's adjusted earnings per American Depositary Share (ADS) came in at $1.52, which handily beat the forecast of $1.12.

AI Cloud and Applications Drive Growth

Let's talk about that AI engine. Baidu says it delivered solid revenue across its AI Cloud, AI Applications, and AI-native marketing segments. The numbers back that up.

AI Cloud Infrastructure generated 5.8 billion yuan in Q4 revenue. More impressively, the subscription-based part of that business—think AI accelerator infrastructure—saw revenue rocket up 143% year-over-year. That's the kind of growth that gets investors' attention. AI Applications brought in another 2.7 billion yuan. The company is even reorganizing to push this further, forming a new Personal Super Intelligence Business Group to integrate its Wenku and Drive services and advance AI app development.

Then there's AI-native marketing services. This isn't your grandfather's search ad. This is marketing built from the ground up with AI, and it generated 2.7 billion yuan in the quarter, up a staggering 110% year-over-year.

Apollo Go and Autonomous Driving Expansion

Over in the world of self-driving cars, Baidu's Apollo Go service is logging miles. It completed 3.4 million fully driverless rides in the quarter, which is up more than 200% from a year ago. By February 2026, cumulative rides had surpassed 20 million.

On the streaming side, revenue from iQIYI, Inc. (IQ)—which Baidu controls—was $971.60 million (6.79 billion yuan). That topped the analyst estimate and represented a modest 3% year-over-year growth.

Now, growth costs money. Baidu's Selling, General, and Administrative (SG&A) expenses rose 10.6% year-over-year to $1.06 billion, which the company said was primarily due to an increase in expected credit losses. Research & Development (R&D) expenses also inched up 1.4% to $800 million. The combined effect? Baidu's adjusted EBITDA margin dropped to 14% from 20% a year ago. You're spending to grow the future business, but it squeezes profitability in the present.

Cash Position, Buyback and Dividend Policy

Despite the margin pressure, Baidu is sitting on a mountain of cash. As of December 31, 2025, it had $42.06 billion in cash and equivalents. It generated a free cash flow of $91 million during the quarter. If you exclude the iQIYI business, that free cash flow was a slightly smaller outflow of $87 million.

Perhaps feeling confident in that cash pile, the company made two big capital allocation moves. It authorized a new share repurchase program of up to $5 billion. Even more notably for a growth-oriented tech company, it introduced its first-ever dividend policy, with an initial payment potentially coming by the end of 2026. Buying back stock and paying a dividend is often a signal that a company believes its shares are undervalued and that it has stable cash flows to return to shareholders. It's a mature move for a company trying to reinvent itself.

CEO Commentary on AI-First Strategy

Baidu Co-founder and CEO Robin Li framed 2025 as a turning point. "Artificial intelligence became central to the company's strategy," he said. He pointed to the strong momentum in AI Cloud Infrastructure, crediting Baidu's "full-stack AI capabilities" and rising adoption by enterprises.

He said the company expanded its AI application portfolio for both businesses and individuals, while Apollo Go "strengthened its global leadership and accelerated international expansion." He also noted the continued growth in AI-native Marketing Services. His closing message was one of confidence: "Baidu's AI-first strategy will create long-term value."

In early trading following the report, the market seemed focused on the revenue decline. Baidu shares were down about 4%. iQIYI shares, however, were up slightly. It's a snapshot of a company in transition: the market is still judging it by its past, even as it races toward a very different future.