China's leading search engine reports tomorrow, and expectations are high for Baidu (NASDAQ:BIDU). Morgan Stanley upgraded the shares on Monday, sending Baidu stock to another all-time high this week.

Chinese Internet companies have been volatile. There's the restrictive nature of China, with investors fearing that the government can clamp down on access. This is also a country that's just migrating to cyberspace, opening the door for disruptive upstarts to gain market share at the expense of the dot-com pioneers.

Baidu has been resilient in light of the volatility. It continues to be the dominant player in the lucrative paid search market and, even though Qihoo 360 (UNKNOWN:QIHU.DL) has emerged as a credible and growing silver medalist: there's no sign of Baidu slowing down. 

Revenue growth has actually been accelerating in recent quarters and, even though bottom-line growth has been challenging, the market accepts that contracting margins are a small price to pay as Baidu expands into new areas. 

Analysts see revenue soaring 58% for the quarter. Earnings per share are only expected to inch 7% higher, but the market is patient as Baidu builds up its presence in online video, travel portals, and mobile app marketplaces. 

Morgan Stanley's upgrade is notable. It's not just about going from equal weight to overweight on Monday, slapping an ambitious price target of $239.30 on the shares. The timing of analyst Adam De Stefano's bullish turn is what should really excite investors. Wall Street pros don't warm up to a stock just three days before an earnings report unless they are confident that it will be a well-received performance. 

Qihoo 360 investors will also naturally be watching. The company won't be reporting until late next month, but any strength or weakness in Baidu's ability to milk more marketing dollars out of its sponsors could tip off Qihoo 360 investors on the state of paid search as it begins to monetize its growing search platform.

If Baidu wants to keep the new highs coming, it will want to make sure that it lives up to its earlier forecasts. It will have to justify why earnings growth has been suppressed. More importantly, Baidu will have to make sure that its guidance points to continued heady growth. Accelerating growth isn't sustainable for a company of Baidu's size, and Wall Street doesn't need that now.

Analysts already see revenue slowing to a 49% rate during the new quarter, and that hasn't kept Baidu from hitting fresh highs. However, with Qihoo 360 still gaining market share as a distant rival, and the market's general skittishness when it comes to Chinese growth stocks, Baidu can't afford to disappoint the market after having come so far. We know where Morgan Stanley stands; now it's time to see where Baidu stands.