AI search. Global investors just can't get enough of AI stocks, except if it's Baidu. China's $36 billion search-engine operator lags artificial intelligence leaders like Microsoft, but has made progress on its answer to OpenAI's ChatGPT. Yet its stock plunged 8% in New York trading on Wednesday despite decent results. It now trades below 10 times forward earnings. Blame a wider rout in Chinese equities and overly high expectations.

Quarterly results show the company is starting to monetise its AI bets. The numbers look promising: revenue from its flagship generative AI product, Ernie Bot, and the foundational model used to train it, topped 656 million yuan ($91 million) in the three months to the end of December. That's less than 2% of Baidu's top line, which primarily consists of advertising revenue, but boss Robin Li believes AI-related services will generate "several billion" yuan in incremental sales this year.

To that end, Baidu is doing the right things. The company in November launched a paid version of Ernie Bot. It has also partnered with companies including Lenovo and Samsung to integrate AI apps into hardware. As of December, enterprise clients using its Ernie large language model stood at 26,000, up 150% from the same quarter the previous year.

After the latest selloff, Baidu's New York shares have fallen by a quarter in 12 months. In contrast, OpenAI-backer Microsoft and Google-owner Alphabet are both up over 50% over the same period, thanks to the global AI craze that has boosted stocks across the U.S., Europe and Japan. A selloff in Chinese equities is one factor, but even upstarts are attracting more excitement: Moonshot AI, a Chinese startup founded a year ago, recently raised over $1 billion at a $2.5 billion valuation, Bloomberg reported.

Baidu's current single-digit earnings multiple is far below its five-year average of 15 times. That implies shareholders are attributing very little, if any, value to its AI efforts. Li has his work cut out convincing investors Baidu deserves some AI love.