Baidu Recoups Some Losses as Analysts See Selloff Overdone

(Bloomberg) — Baidu Inc. climbed as much as 4.3% on Tuesday, regaining some of its losses after analysts labeled excessive a selloff triggered by a report of links to Chinese military AI research.

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China’s internet search company, generally regarded as a leader in the country’s burgeoning AI arena, rallied the most in a month before trimming some of the gains. Baidu on Monday plunged more than 11%, its biggest decline since 2022, after a South China Morning Post report about how a university affiliated with the People’s Liberation Army’s Strategic Support Force — which oversees cyberwarfare — had tested its AI system on Baidu’s ChatGPT-like Ernie.

Baidu on Monday denied any affiliation or partnership with the institute. But the SCMP’s report about the hook-up with the PLA, citing a research paper, raised concerns that Washington may consider imposing sanctions on Chinese firms to curtail such collaboration.

Investors may have overreacted Monday given poor market sentiment, Citigroup Inc. analysts including Alicia Yap wrote.

“Baidu has not engaged in any business collaboration or provided any tailored service to authors of the academic paper or any institutions with which they are affiliated,” the company said in a Hong Kong stock exchange filing. “The South China Morning Post, the first media outlet that reported on this academic paper, has clarified and corrected their original media report.”

Yet it will be hard to recoup all the losses, according to Vey-Sern Ling, managing director at Union Bancaire Privee.

“The company made some clarifications yesterday so it helps repair sentiment. But the doubt has already been cast in investors minds of potential geopolitical overhangs given its position as a leading AI player in China. So it’s also logical that the stock doesn’t rebound right back to where it came from,” he said.

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Read More: Baidu Sinks Most Since 2022 Despite Denying Links to PLA AI

Baidu in 2023 debuted Ernie — the country’s earliest answer to OpenAI’s ChatGPT — part of a development frenzy that’s involved dozens of startups and tech leaders from Tencent Holdings Ltd. to Alibaba Group Holding Ltd. But it will be awhile before Baidu begins earning fully from its generative AI services, and it remains mired for now in a fundamental online advertising slump.

–With assistance from Mackenzie Hawkins.

(Updates with analyst quote in last paragraph)

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