Baidu.com (BIDU US & 9888 HK) Baidu 3Q26 Preview: Cloud Carries the Quarter, Ads and Depreciation Cut Earnings; Trim PT, Stay OW

We maintain Overweight on Baidu but cut our 2026E and 2027E non-GAAP net income by 15% and 42% ahead of 3Q26 results. Two changes drive the cut. Online marketing is weakening further, and we see no reset in AI search monetization before Baidu sets its 2027 plan. The 2026 step up in capex also raises our depreciation assumption, most visibly in 2027E. Neither change touches the reason to own the stock: our case rests on GPU Cloud and Kunlunxin, and we expect 3Q26 to show AI Cloud Infra reaccelerating with better cash conversion. We forecast 3Q26 AI Cloud Infra revenue of about RMB8bn, up roughly 90% YoY and 10% QoQ, with more GPU Cloud customers prepaying and contract terms stretching from about 12 months toward two to three years. We estimate 3Q26 capex fell below RMB8bn from RMB11.4bn in 2Q26, and expect operating cash flow to stay positive for a fifth consecutive quarter, with no need for an equity or convertible raise and a 20% haircut kept on net cash. We expect group non-GAAP oper