Baidu's stock soared in spite of doubts about the ChatGPT rival

Despite Baidu Inc.'s underwhelming demonstration of its ChatGPT-like chatbot this year, the company's market-beating stock rally has held up, even while the company's stock has been outperforming the market this year. There is a growing trend among traders to bet that the gains won't last forever.

‍

It was just a short drop in the share price of the Chinese search engine giant last month when its Ernie Bot turned out to be pre-recorded, disappointing investors, and again last week when the company postponed a press conference for demonstrating integration with cloud computing services as part of the company's integration with cloud computing services. 

‍

However, traders are beginning to increase their bets on the downside of the market in the short term. According to data from S&P Global Market Intelligence, they have sold short about 2% of the free float of its American depositary receipts, the highest level since November, according to S&P. In Hong Kong, the total open interest in put contracts has reached a record high, which is close to a record. Skeptics believe that the mania for all things AI has gone too far since Baidu's chances of making money with AI anytime soon are unlikely to be any better than what they are right now. There is a concern similar to what was experienced by the chip supplier Nvidia Corp. over the past few years.

‍

Despite the fact that Baidu's bot "certainly has the potential to be a catalyst for long-term growth," Morningstar analyst Kai Wang cautioned that we should be cautious in the short term. "In my opinion, there could be many issues that need to be addressed. It is still unclear to us how Baidu's ChatGPT will be monetized in the next couple of years. There is still a long way to go until it is developed, even if they manage to get the technology right."

‍

This year Baidu has risen more than 30% not only in the US but also in Hong Kong, ranking among the top 10 best-performing stocks in both the Nasdaq Golden Dragon China Index as well as the Hang Seng Tech Index, which is the most popular stock index in both countries. The company has been riding high on optimism about its Artificial Intelligence technology, as well as strong earnings for the entire year, giving it a positive outlook. 

‍

Beijing has also increased investor confidence through its policy support. The state media People's Daily has urged for the faster development of the AI industry, while the government has launched a project aimed at boosting the research and integration of AI within the government. During the National People's Congress, held in March, high-ranking politicians also underlined that the economy must be further "digitalized" as a means of enhancing economic growth.

‍

But Baidu is running out of time to take advantage of the policy windfall in order to take first-mover advantage of it. In fact, peers such as Tencent Holdings Ltd., Alibaba Group Holding Ltd. and NetEase Inc. have already announced that they are planning to release their own AI tools that are similar to ChatGPT. 

‍

Shares of the company are also under pressure because of a number of concerns including margin pressure due to large research and development expenses, as well as US restrictions. The Japanese government on Friday announced that it will extend export restrictions for more than a dozen types of leading-edge chipmaking technology, as the US ramps up its efforts to block China's access to key semiconductor technology. 

‍

“In order for Chinese companies to develop a similar product to ChatGPT, they must overcome the barriers imposed by US restrictions on the export of high-end chips to China,” said Third Bridge Group analyst Alex Wong. According to Baidu, the reinforcement learning model will be refined to make it less dependent on GPUs so that reinforcement learning will be easier.

‍

There have been strong gains for the Nasdaq 100 this year thanks to smart investments in big tech companies, which have contributed to the gauge outpacing broader indexes such as the S&P 500 and Russell 2000. Stocks in the banking sector have been boosted by the turmoil in the sector, as investors have concentrated on the safe-haven attributes of the sector, such as strong balance sheets and consistent revenue streams. In the three months that ended March 31, the Nasdaq 100 was up 20%, while the S&P 500 was up 7% and the Russell 2000 was up 2.3%. On Monday, the Nasdaq 100 traded at a 0.7% lower level, taking a breather.