Baidu selloff on SCMP article likely overreaction, says Citi

Citi analyst Alicia Yap says Baidu shares dropped 11.5% during Hong Kong trading hours following a South China Morning Post report that a research paper published by a research lab at Strategic Support Force Information Engineering University had used Baidu’s large-language model Ernie. Since the university is affiliated with the People’s Liberation Army, and the research studied battlefield situations and how to use artificial intelligence to detect and predict changing battlefield conditions, the market perceived a potential risk that Baidu could face an overhang from any association or cooperation with Chinese military entities, the analyst tells investors in a research note. “Amid fragile market sentiment, we believe the market likely overreacted to the news article,” says Citi. The firm believes any commercial use of Ernie for detail usage would have required formal contract agreement with Baidu. Citi keeps a Buy rating on Baidu with a $178 price target.