The battle of the AI chatbots has stepped up a notch after Chinese search giant Baidu unveiled its much-anticipated rival to ChatGPT.

The company showed off Ernie (short for “enhanced representation through knowledge integration”), which analysts believe could be Beijing’s strongest competitor in a crowded field dominated by US firms.

ChatGPT is made by the Microsoft-backed OpenAI, while Google and a host of ambitious startups are also developing their own so-called large language models.

The growing interest in the technology triggered a rush among Chinese tech giants to develop their own, and Baidu was the front-runner after announcing last month it would soon have one ready to launch.

But a presentation at its headquarters sparked little enthusiasm, with chief executive Robin Li admitting that the chatbot was not ready for primetime.

“For sure, we cannot say it is perfect,” he said.

“So why are we unveiling it today? Because the market demands it.”

What can Ernie do?

Thursday’s demonstration included many of the hallmarks of what people have become used to with ChatGPT.

Ernie was shown answering questions, completing maths calculations, and understanding different languages.

However, it also went further by showcasing an ability to generate video and images with text prompts.

Baidu wants Ernie to revolutionise its search engine, much as Microsoft is leveraging OpenAI’s tech in Bing.

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But the demonstration failed to move investors, as everything was shown in pre-recorded videos rather than live.

It’s also not publicly available, with limited invitation codes going out from Thursday.

Hundreds of companies have signed up to use the tech, however, which Baidu says could be used to power smart devices and driverless cars.

Shares tumbled as much as 10% during the presentation. While they had recovered slightly by the end, it still shaved $3bn (£2.5bn) off the company’s market valuation.

Analyst Kai Wang said: “It seems like the presentation was more of a monologue and scripted, rather than an interactive session that people were looking for.

“There was no soft launch date either, which likely led to negative sentiments.”

Baidu plays down US rivalry

Baidu boss Mr Li appeared to compliment OpenAI’s tech during his presentation, saying it showed the threshold was high for companies looking to succeed in the space.

His speech was live-streamed across a number of platforms, including some that are blocked in China itself, like YouTube and Twitter.

“Ernie Bot is not a tool of confrontation between China and the US,” Mr Li added.

The presentation came days after OpenAI announced the next iteration of the tech powering ChatGPT, which has attracted hundreds of millions of users since launching in late 2022.

Microsoft is also hosting an AI event on Thursday, while Google this week said it would be bringing generative AI to workplace apps like Gmail and Docs.