By Eduardo Baptista and Josh Ye

BEIJING/HONG KONG (Reuters) – China’s Baidu unveiled its much-awaited artificial intelligence-powered chatbot known as Ernie Bot on Thursday, but disappointed investors with its use of pre-recorded videos and the lack of a public launch, sending its shares tumbling.

The just over an hour-long presentation, which came two days after Alphabet Inc’s Google unveiled a flurry of AI tools for its email, collaboration and cloud software, gave the world a glimpse of what could be China’s strongest rival to U.S. research lab OpenAI’s ChatGPT.

But unlike ChatGPT, which last November launched as a free to use chatbot to the public, Baidu limited the presentation to brief videos that showed Ernie carrying out mathematical calculations, speaking in Chinese dialects and generating a video and image with text prompts.

It will only be open for trial to an initial group of users with invitation codes from Thursday, while companies can apply to embed the bot into their products via Baidu’s cloud platform, the company said.

Baidu’s Hong Kong shares tumbled as much as 10% while its CEO Robin Li spoke and eventually closed 6.4% lower, shaving over $3 billion off the Chinese search engine giant’s market valuation.

“It seems like the presentation was more of a monologue and scripted rather than an interactive session that people were looking for. There was no soft launch date either which likely led to negative sentiments,” said Kai Wang, an analyst from Morningstar.

Baidu is seen as a leader in a race in China among tech giants and startups to develop a rival to Microsoft ChatGPT, which took the world by storm after showcasing the power of so-called generative AI, which can create new text, imagery and other content based on inputs from past data.

The company’s Ernie bot is based off its AI-driven deep learning model, Ernie – short for “Enhanced Representation through Knowledge Integration”.

During the presentation at Baidu’s Beijing headquarters that was also livestreamed over nine platforms, Li cautioned it was not perfect. “So why are we unveiling it today? Because the market demands it,” he said.

Baidu did not immediately respond to a request for comment on the share drop but after the presentation published a statement saying that over 30,000 corporate users had applied to test the API of Ernie Bot’s business-facing edition and that traffic on Baidu’s cloud website soared.

“After the release of ChatGPT, only Baidu has made a benchmark product among the major tech companies in the world,” it said.

NATIONAL CHAMPION

Charlie Chai, an analyst with 86Research, said while the event was clearly a disappointment for many who had viewed it as a trading catalyst, he still viewed Baidu as the best bet in China’s AI space.

“We continue to advise investors to patiently hold BIDU shares as the best ‘national champion’ play in China’s (semi-segregated) AI space,” he said.

Baidu has touted its many years of heavy R&D investment in artificial intelligence and deep learning and said it plans to use Ernie Bot to revolutionise its search engine as well as use it to increase efficiency in cloud, smart cars and household appliances.

Earlier this week, OpenAI on Tuesday said it is beginning to release a powerful artificial intelligence model known as GPT-4, describing it as “multimodel”, meaning images as well as text prompts can spur it to generate content.

Li nodded to GPT-4 during his speech, saying it surprised him with its ability to summarise information, but cautioned against seeing this through the lens of geopolitics.

“Ernie Bot is not a tool of confrontation between China and the United States,” he said.

To date, 650 companies have said they will join the Ernie ecosystem, he added.