• Analysts are bullish on Chinese tech giant Baidu's latest version of generative artificial intelligence model, Ernie 4.0.
• Still, Baidu's stocks did not react positively to the news.
• Baidu's Hong Kong-listed shares closed 1.65% lower on Tuesday, underperforming a 0.75% increase in the Hang Seng Index. Its Nasdaq-listed shares slid 4.12% overnight.

Analysts are bullish on Chinese tech giant Baidu's latest version of its generative artificial intelligence model, Ernie 4.0, but investors did not react positively to the development.

"We came away positively following the announcement of several new products including the official debut of Ernie 4.0," said Citi analysts in a report, after Baidu announced a "significantly improved" version of Ernie 4.0 on Tuesday.

"CEO Robin Li also announced the rebuilding of all apps within the Baidu ecosystem with deeper AI integration," the analysts said, maintaining a "buy" rating at a target price of $182.

During Baidu World 2023, Li said: "This is the most powerful version of Ernie foundation model to date, upgraded in its entirety, under the full capabilities [of] understanding generation reasoning and memory."

At the company's annual flagship tech conference, Li demonstrated Ernie 4.0's ability to compose a martial arts novel in real-time, create advertising posters and videos with prompts, plan a trip itinerary as well as solve complex math problems.

"A significant improvement in [comprehension, generation, reasoning and memory] capabilities is seen in Ernie 4.0, with 3.6x improvement in training algorithm," said Jefferies analysts in Tuesday report, maintaining a "buy" rating with a $216 price target.

The Chinese tech giant claimed Ernie 4.0′s capabilities are on par with those of ChatGPT maker OpenAI's GPT-4 model. "It has been significantly improved compared to the online version of Ernie bot and now it is not inferior to GPT-4," Li told an audience of analysts, investors and journalists.

Baidu first released Ernie 3.0 on March 16 to a limited pool of users.

The company launched the 3.5 version in June, and claimed that Ernie 3.5 outperformed ChatGPT and GPT 4 in several key areas.

It officially opened access to the public on Aug. 30 after getting government approval.

"Baidu's statement that it is now on par with GPT-4 marks a significant milestone for the Chinese tech giant," Xiaolin Chen, head of international at KraneShares, told CNBC.

However, she pointed out that the efficacy of AI models can vary depending on specific use cases and tasks.

"Evaluating Ernie across a diverse range of applications would be instrumental in making a more comprehensive comparison with other models. It's also worth noting that direct comparison between different AI models can be challenging, due to the diverse methods and benchmarks employed in testing," said Chen.

Investor sentiment down

However, investors did not react positively to the development.

Baidu's Hong Kong-listed shares closed 1.65% lower on Tuesday, underperforming a 0.75% increase in the Hang Seng Index. Its Nasdaq-listed shares slid 4.12%.

"We believe that investors remain concerned over long-term issues such as how Baidu will deal with chip sanctions and other key risks that could impede further development of the firm's AI business, which were never addressed during CEO Robin Li's presentation," wrote Kai Wang, senior equity research analyst at Morningstar Asia.

"The conference highlighted some of the model's capabilities rather than giving an update on the long-term strategic direction of Baidu's AI business as there was a lack of new guidance for the business," said Wang in a report.

Large language models such as ChatGPT and Ernie require high-performance memory chips. Such chips enable generative AI models to remember details from past conversations and user preferences in order to generate humanlike responses.

On Tuesday, the U.S. banned exports of more AI chips, including Nvidia H800, to China.

Last week, Washington tightened rules aimed at limiting China's ability to obtain or manufacture high-tech semiconductor chips. Washington is concerned that China would use such high-tech chips to advance its military capabilities.

– CNBC's Michael Bloom contributed to this report.