Baidu’s (NASDAQ:BIDU) stock plummeted approximately 4% in the premarket on Tuesday, spawning concern among investors. This dip follows Citi analysts’ observation that the market might have unjustly reacted to a news report released on January 12. The report linked the use of the company’s AI platform Ernie to a research laboratory affiliated with the Chinese military.

The previous day, the company’s shares crumbled by approximately 11% in the Hong Kong market, painting a picture of tumultuous trading for the technology giant.

The South China Morning Post’s report, citing a research paper, emphasized that a research laboratory within the People’s Liberation Army’s (PLA) Strategic Support Force — an entity overseeing the Chinese military’s space, cyber, intelligence, and electronic warfare — tested its AI system on Baidu’s Ernie, as well as iFlyTek’s Spark, two large language models (LLMs) similar to OpenAI’s ChatGPT.

Reacting to the report, Baidu issued a press release stating, “”ERNE Bot is available to and used by the general public. The academic paper, published by scholars at a Chinese university, described how the authors built prompts and received responses from LLMs, using the functions available to any user interacting with generative AI tools. Baidu has not engaged in any business collaboration or provided any tailored service to authors of the academic paper or any institutions with which they are affiliated.”

Analysts at Citi Research have suggested that since the university is affiliated with the PLA, and the research involved studying battlefield situations and how to use AI to detect and predict changing battlefield conditions, among other things, they think the market perceived a potential risk that Baidu could face an overhang from any association/cooperation with Chinese military entities.

In the midst of fragile market sentiment, the analysts believe the market may have overreacted to the news article, possibly exacerbating the stock’s decline.

Companies across the globe are developing their own LLMs, and numerous are on the brink of entering the market. Meta Platforms’ (META) Emu Video, Emu Edit, AudioCraft, SeamlessM4T, and Llama 2, Alibaba’s (BABA) Tongyi Qianwen 2.0 and Tongyi Wanxiang, Baidu’s (BIDU) Ernie Bot, OpenAI’s text-to-image tool DALL·E 3, Alphabet (GOOG) (GOOGL) unit Google’s Bard, Samsung’s (OTCPK:SSNLF) Gauss, and Getty Images’ (GETY) model called Generative AI by Getty Images, are among the many LLMs under development, a sign of the intense competition and technological evolution in the AI sector.