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The market has recently moved on from all things artificial intelligence (AI), focusing instead on global trade and tariffs. But in the background, the AI revolution continues apace and is disrupting some businesses. One is Chegg (NYSE: CHGG), which was trading for $113 in 2021 but is now priced as a penny share at $0.75.
That’s a shocking four-year decline of 99%!
An example of disruption
Chegg is an education technology company that offers services like textbook rentals, homework help, and study resources. Its customers are mainly college and high school students.
However, as we know, generative AI bots like ChatGPT now — somewhat controversially — offer free help with homework and essays, undermining Chegg’s value proposition. Basically, students seem to be thinking: ‘why pay for Chegg when AI gives you free answers?’
In 2023, management said: “Since March we saw a significant spike in student interest in ChatGPT. We now believe it’s having an impact on our new customer growth rate.”
Chegg was right. In two years, its subscribers have gone from 5.1m to 3.2m, with revenue falling from $188m to $121m in that time. Worryingly, its cash position has fallen from $281m in Q1 2023 to just $44m at the end of March (and it’s now loss-making).
To try to improve things, the company is drastically cutting costs and exploring being acquired. Perhaps that can salvage some value (the market cap is now just $79m).
It’s also licensing its question-and-answer pairs to language model companies, though that appears to be a double-edged sword to me. Yes, it’s generating revenue by leveraging proprietary education data, but giving AI companies its content could cannibalise the core subscription business.
Today (12 May), Chegg’s management wrote: “We believe the trends impacting our business will worsen before they get better.”
Those “trends” are, of course, mainly declining subscribers due to competition from generative AI.
AI is not a single event
Many people have likened AI to the internet, but it does appear different to me.
While revolutionary, the internet was a one-time platform shift. But AI is not a single watershed moment. Rather, it’s a self-improving force, constantly learning and evolving, perhaps exponentially.
Consequently, I expect a lot more disruption — and potential opportunities — in the years ahead.
This stock looks in no danger from AI
Of course, there will be some businesses that AI won’t hurt. It should even make them more efficient and profitable. Many of these can be found in the FTSE 100, including miners, global banks, and oil giants.
One UK stock that might be worth considering is AstraZeneca. It’s down 16% since March as investors worry about the Trump administration’s drive to lower drug prices in the US. This is a risk worth mentioning, as the US is AstraZeneca’s largest market.
However, in terms of AI, the technology could actually turbocharge the company’s drug discovery process. Not only that, but AstraZeneca has the wherewithal to really invest in its AI capabilities, unlike most smaller upstarts.
To me, the firm looks more likely to benefit from AI than be threatened by it. With the stock trading at a reasonable 15 times forward earnings, I think it’s worth a look.
