Baidu Stock Plummets In Biggest Drop Since 2022 Amid Reports Linking Ernie To PLA AI

In the wake of reports linking its AI platform, Ernie, to Chinese military research, Baidu Inc BIDU has experienced its most severe drop in over a year.

What Happened: Baidu’s Hong Kong-listed shares sank by more than 10% on Monday, compounding losses from U.S. trading the previous week. The decline follows a South China Morning Post article revealing a purported “physical link” between Baidu's Ernie and the People's Liberation Army's (PLA) AI platform, according to a Bloomberg report.

The fear is that these revelations could spark sanctions from Washington in an attempt to curb China’s growing clout. The exact nature of the supposed connection to Baidu remains uncertain.

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"People are worried about sanctions on Baidu obviously after the news report about military ties. They fear that the US government may announce measures to target Baidu. The company hasn't clarified either after the news," said Steven Leung, executive director at UOB Kay Hian Hong Kong Ltd. 

Why It Matters: Ernie, launched by Baidu in 2023 as China’s first counterpart to OpenAI's ChatGPT, quickly gained popularity, amassing 70 million users within three months of its public launch.

Earlier this month, Robin Li, founder of Baidu, called for Chinese entrepreneurs and officials to shift their focus from developing large language models to creating applications for existing models like Ernie. Regardless of Li’s appeal, competition has escalated with a rapid increase in the number of local models.

This upsurge in rivalry poses a threat to Baidu’s aspirations in emerging technologies, mirroring a trend seen over the past ten years where the company had to withdraw from various ventures due to intense competition. The recent military allegations and their impact on Baidu’s stock further underscore the challenges the company faces in its AI ambitions.

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