Talk about buying the rumor. Baidu, China's leading internet search provider, let it be known on Jan. 30 that it will launch a so-called chatbot powered by artificial intelligence, akin to the ChatGPT system that has seized global imaginations.
Its U.S.-listed shares (ticker: BIDU) are up 9%. Markets acting rationally? Maybe. Baidu copycatting ChatGPT within months, assuming it delivers as promised in March, may paradoxically indicate that chatbots aren't really worth much, at least in their current form.
The technology will be hard to build a moat around, says Matthew Sheehan, a Carnegie Endowment for International Peace fellow who focuses on AI. Other players on both side of the Pacific -- Alphabet $(GOOGL)$, Tencent Holdings (700.Hong Kong), Alibaba Group Holding $(BABA)$ -- may just be waiting to learn from the first movers' mistakes. "There's a question how commoditized this technology will be," he says. "All the theoretical breakthroughs are in the public domain."
The value for Baidu could lie elsewhere: cementing its de facto status as China's AI champion. The company's growth from search-driven advertising peaked some time ago. Shares are down 40% over the past five years. That pushed Baidu into sustained investments in AI, notably autonomous driving technology.
The company's "robotaxi" fleet should double this year to 2,000, while an electric-vehicle joint venture with Geely Automobile Holdings (175. Hong Kong) gathers momentum. "The market undervalues some of the growth from these new areas," says Sharukh Malik, a portfolio manager for Asian equities at Guinness Asset Management.
Baidu's slower growth shielded it somewhat from the regulatory storm that broke over Alibaba, Tencent, and others during the past two years. "Baidu has been under less regulatory pressure," says Vivian Lin Thurston, an emerging markets portfolio manager at William Blair.
Baidu is working with government on a "smart crossroads" initiative, Malik adds, deploying its AI systems to adjust traffic lights according to traffic flows. "Baidu is showing its ability to take part in the build-out of national infrastructure," he says.
China's near-immediate answer to ChatGPT -- again, if Baidu fulfills its promise -- also sends a message to the U.S. If Washington's clampdown on semiconductor exports is meant to keep China from advanced applications like AI, it isn't working too well so far.
Baidu is using chips from its own Kunlun subsidiary. Sitting on data from one billion or so users, with fewer pesky privacy restrictions, can be as important as hardware for AI development.
That could be Chinese companies' secret sauce, says Jason Hsu, chief investment officer at Rayliant Global Advisors. "China having more data points and less data privacy makes the AI race a lot more even," he says.
That race looks to be on in earnest and in public now, whether the chatbots thrive or flop, The drive for AI is rekindling animal spirits among techies, and their investors, as yesterday's sensations -- search, social media, e-commerce -- lose some luster.
That's good news for "tech enablers" like out-of-fashion chip manufacturers, says Pruksa Iamtongthong, senior investment director at asset manager abrdn. "The intuitive winner here is a company like TSMC [ Taiwan Semiconductor Manufacturing $(TSM)$]," she says.
Hype can be its own reward too, for a while, Hsu adds. "I don't quite see the fundamental relevance of all this," he says. "But sentiment will keep steering capital to anything that can claim a connection to China's version of ChatGPT."