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Earnings and Options Strategy | AI Commercialization Drives Baidu's Business Transformation; Can Chips and Smart Driving Bring New Surprises?

$Baidu (BIDU.US)$ Baidu is set to release its Q4 and full-year 2025 earnings report before the US stock market opens on February 26, 2026.

Analyst consensus estimates show that this quarter's revenue will be approximately RMB 32.645 billion, a year-on-year decrease of about 4.33%, mainly due to the drag from traditional advertising businesses, but offset by high growth in AI business, showing an improving trend quarter-on-quarter; Earnings Per Share (EPS, US-GAAP) is expected to be around RMB 6.877, a significant year-on-year drop of about 51.77%, primarily due to continuous investments in AI research and development, chip production, and autonomous driving expansion, which have temporarily lowered net profit levels.

Despite year-on-year pressure on revenue and profitability, the market focus is on the quarter-on-quarter recovery of Baidu's AI business and the guidance for 2026 growth, particularly the commercialization of the Wenxin large model, acceleration of smart cloud infrastructure, the potential of Kunlun chips, and the rapid expansion of Luobo Fast Run autonomous driving.Whether these highlights can be realized in the earnings report and lead to an optimistic outlook from management will directly determine the direction of Baidu's stock price.

As of now, $Baidu (BIDU.US)$ The stock price is oscillating within the range of $133-$136, with implied volatility (IV) remaining at a historically high level of around 78%, representing a typical 'event premium' before earnings reports. Investors may seize this window period to position themselves in options.

I. Earnings Focus: AI is the biggest highlight, with smart cloud, Kunlun chips, and autonomous driving engines poised for growth

The core focus of this earnings report is not short-term financial data but rather the progress of AI commercialization. The three major businesses—Wenxin Large Model, Smart Cloud, and Kunlun Chip, along with Luobo Fast Run—will determine Baidu’s long-term valuation ceiling.

1. Core Highlights of AI: Explosive Growth in Users and Functions of Wenxin Large Model

As the core of Baidu's AI ecosystem,the monthly active users of Wenxin Large Model and Wenxin Assistant have exceeded 200 million,becoming one of the top three domestic AI platforms with over 100 million users, alongside DouBao and QianWen. During the Spring Festival in 2026, Baidu launched a 500-million-yuan red envelope campaign, driving explosive growth in new users and function usage of Wenxin Assistant.

Wenxin Large Model has deeply transformed Baidu's core search business, with the proportion of generative AI search results continuously increasing. AI-native marketing services have become a new growth point for the advertising business. In Q3 of 2025, Baidu's AI-native marketing revenue increased by 262% year-on-year, acting as a 'cushion' for the traditional advertising business.This earnings report will disclose the latest penetration rate of this business, which will directly affect market expectations regarding the stabilization of the advertising business.

2. Intelligent Cloud + Kunlun Chip: Hard Tech in Computing Power, IPO Becomes the Biggest Catalyst

Baidu's Intelligent Cloud is the "cash cow" of its AI business. In the third quarter of 2025, revenue from AI infrastructure increased by 33% year-over-year, with subscription-based AI accelerator infrastructure revenue surging 128%. Q4 is expected to maintain this accelerated pace.Kunlun ChipAs the core computing power support for the intelligent cloud, it has become the market’s biggest point of anticipation.

– Commercial Implementation:Baidu's Kunlun Chip ranks among the top tier in China’s AI chip market. Reports indicate that the cumulative deployment of Kunlun Chip's third-generation P800 series has reached tens of thousands of units, with a single cluster size exceeding 30,000 cards. In 2025, Kunlun Chip won a 1 billion yuan procurement project from China Mobile, demonstrating its commercial implementation capabilities, with projected sales reaching 3.5 billion yuan in 2025.

– Capital Activities:In January 2026, Baidu submitted an application for the spin-off and listing of Kunlun Chip on the Hong Kong Stock Exchange. Independent capitalization will unlock the valuation of the chip business. JPMorgan forecasts that Baidu Kunlun Chip’s revenue will soar from approximately 1.3 billion yuan in 2025 to 8.3 billion yuan in 2026, a sixfold increase. Based on an average price-to-sales ratio of 10x, its standalone valuation could exceed 80 billion yuan, significantly enhancing Baidu’s overall value.

Analysts believe that with the expansion of external customers and driven by Baidu’s own cloud demand, the intelligent cloud is expected to contribute significant incremental growth in 2026, becoming the second growth curve to offset the decline in advertising. Management previously guided that “AI Cloud will enter the harvest phase in 2025,” with Q4 earnings data and 2026 guidance serving as key validation points.Additionally, in this earnings report, demand data for Kunlun Chip and updates on its IPO progress will be the core issues closely questioned by institutions.

3. Luobo Fast Run: High Order Growth, Accelerated Global Expansion

Baidu's Apollo Go (Luobo Kuaipao) has become a key player in the global Robotaxi market. In the third quarter of 2025, Luobo Kuaipao completed 3.1 million fully driverless orders, with year-over-year growth accelerating from 148% in Q2 to 212%. On the expansion front, Luobo Kuaipao has initiated its global footprint: securing a fully driverless commercial operation license in Abu Dhabi, planning to start test operations in London by 2026, and partnering with Uber and Lyft to tap into overseas mobility markets.

CEO Robin Li has repeatedly stated that 'Robotaxi has reached an inflection point,' with 2026 set to focus on expanding into new international cities and achieving scaled profitability. As order density increases and the fleet expands, the autonomous driving business is expected to transition from being a 'cash burner' to becoming a 'cash cow.'Investors will closely monitor the delivery volume of Luobo Kuaipao orders in the fourth quarter of 2025.

4. Traditional advertising remains pressured but shows potential for sequential improvement; enhanced shareholder returns solidify valuation floor.

Advertising remains Baidu’s primary revenue driver, but it continues to face macroeconomic pressures and traffic diversion from AI-powered search. In Q3 of 2025, revenue from 'online marketing services' (advertising) was RMB 15.3 billion, down 18% year over year, marking the sixth consecutive quarter of decline since Q2 of 2024.However, with generative AI reshaping search results and improving monetization efficiency, Q4 is expected to see sequential improvement.The stabilization signals in advertising revenue in the Q4 earnings report may alleviate market concerns about a 'slowdown in traditional business.'

In terms of shareholder returns, on February 4, 2026, Baidu's board announced a new share repurchase program of up to $5 billion (through the end of 2028), along with approving its first dividend policy, with initial payouts expected within 2026.

II. Analyst Views: Performance May Be Lackluster, Guidance and AI Value Reassessment Are Key.

DBS, Bank of America, UBS Group, and other institutions have maintained their 'buy' ratings on Baidu, optimistic about its Q4 sequential recovery and the contributions from AI cloud and chip businesses in 2026.

DBS Research analysts noted that Baidu's revenue in the fourth quarter is expected to resume sequential growth. A narrowing year-over-year decline in online advertising revenue and robust growth in AI cloud infrastructure revenue may support profitability. Additionally, the computing intensity and demand for its Kunlun chip may also increase in the fourth quarter. DBS maintains a 'Buy' rating for Baidu stock, raising its target price from $177 to $211.

BofA Securities believes that Baidu’s Q4 2025 performance will meet expectations, with core operations expected to recover sequentially from a low in Q3. Looking ahead to 2026, the firm is optimistic about sustained strong demand in the AI cloud market, believing Baidu's related revenue growth will continue to outperform the industry. The firm highlights Baidu's standout performance in China’s AI sector, with near-term catalysts including the potential IPO of Kunlun chips, shareholder return plans, and dual primary listings in Hong Kong. It maintains a 'Buy' rating.

UBS Group also expects Baidu's performance to meet expectations, with AI cloud infrastructure remaining the primary growth driver. Considering Kunlun chip’s performance and revenue scale advantages in the domestic AI chip market, the firm believes the potential upside has yet to be fully reflected in the stock price. UBS reiterates a 'Buy' rating for Baidu, maintaining a target price of $180.

Three, Options Strategy: Capturing Earnings Catalysts in a High IV Environment

The current implied volatility (IV) of Baidu options sits at the 78th percentile, indicating high IV, which will likely result inIV Crush (volatility collapse) after earnings.

Options signals indicate that the expected volatility on earnings day is 6.64%.

1. Bullish directional strategy: Buy call vertical spreads (buying in-the-money Calls + selling out-of-the-money Calls)

- Applicable scenario: Positive outlook on Baidu’s Q4 sequential improvement in results, better-than-expected AI business performance, and moderate share price appreciation.

- Strategy rationale: Buying in-the-money Calls locks in gains from upward moves, while selling out-of-the-money Calls reduces premium costs, offering limited risk and moderate returns.

– Advantage: Hedges against the impact of IV decline; even if volatility falls after earnings, potential upside from stock price appreciation remains.

– Risk: Maximum loss equals net premium outlay.

2、Volatility shorting strategy: Sell straddle (Sell Put + Sell Call)

– Applicable scenario: Belief that Baidu’s earnings will meet expectations with limited post-earnings stock price movement, betting on rapid IV collapse.

– Strategy logic: Selling at-the-money straddle options to capture time decay and IV drop gains, suitable when expecting “no major surprises or pitfalls” in results.

– Advantage: Post-earnings IV typically collapses most sharply on the first day, leading to a high probability of profit.

– Risk: If earnings significantly exceed expectations, resulting in substantial one-sided stock price movement, position sizing and stop-loss must be strictly managed.

3. Key trading details

Position entry timing: Immediately prior to earnings release. Current IV is at a high level, with IV potentially peaking again 1-2 days before earnings, offering the optimal window for position entry.

Expiration options: Expiring on Friday, February 27 (purely capturing earnings season volatility, with rapid time value decay), or March 6 (allowing for some stock price fluctuation buffer);

Position control: Single strategy position should not exceed 2%-5% of account funds; strictly control overall risk;

Exit rules: Close positions immediately after earnings release (to capture the most intense IV Crush period), or set a stop-loss of 10%-20% to avoid significant losses in one-sided market movements.

Summary

Baidu's Q4 2025 earnings report may see short-term data pressure,but its new growth engines such as AI business, chips, and autonomous driving have entered the commercialization phase. The Wenxin large model has surpassed 100 million users, Kunlun chips are nearing an IPO, and Luobo Kuai Run is expanding globally. Coupled with a $5 billion share buyback and dividend policy, this creates a dual logic of 'growth + value'.

For investors,The core value of this earnings report does not lie in short-term revenue or profit but in management's clear guidance on AI monetization, chip mass production, and autonomous driving profitability by 2026, which will determine Baidu’s long-term valuation recovery potential.Options traders can leverage high implied volatility (IV) to precisely capture earnings-driven price movements while balancing returns and risk control.

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Editor/Doris

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