Education sector stocks plunged on Tuesday. That’s as investors bet that artificial intelligence could upend business models after earnings warnings from edtech firm Chegg.
California-based Chegg, which offers online study guides, acknowledged Monday night that a “massive surge in student interest” in its AI chatbot ChatGPT is starting to affect sales.
On an earnings call with analysts, CEO Dan Rosensweig said:
Chegg shares halved on Tuesday, and the warning rocked other companies. London-listed Pearson’s share price fell 15%, his language-learning platform Duolingo fell 10%, and US-listed education company Udemy fell more than 5%. st.
Stock movements occur as companies grapple with the opportunities and threats posed by generative AI systems such as ChatGPT, which produces highly sophisticated text output in response to short human prompts.
Chegg’s approval is one of the first examples of a company acknowledging financial damage as a direct result of advances in generative AI.
Big tech companies are racing to develop better versions of their technology, and Google launched ChatGPT rival Bard in March. Shares of Google’s parent company Alphabet plummeted last month after Microsoft unveiled a new version of its Bing search engine that includes advanced new AI-driven features.
Pearson CEO Andy Byrd has denied that ChatGPT is a threat to his company’s business model, saying it is a “fundamentally different business” from Chagg.
He told the Financial Times that the possibility of combining AI capabilities with Pearson’s existing intellectual property presents a lucrative opportunity.
“The output of these generative AI models is highly predictable by the quality of the input data sets,” said Bird. “We own very rich and pure datasets. When we start feeding them into generative AI models, we get better outputs.”
Chegg’s Rosensweig argued that the technology would “win in Chegg’s favor” over time, stating that the company ” [generative AI] We are investing aggressively and prioritizing to meet this opportunity. ”
Chegg reported a 7% year-on-year decline in revenue in the first quarter to $187.6 million. Subscribers fell 5% to 5.1 million, he withdrew guidance.
Citigroup analyst Tom Singlehurst said ChatGPT could replicate the “study guide” service provided by Chagg directly.
However, for Pearson, who creates course materials, ChatGPT is likely to be a “secondary threat” that “changes how course administrators create content,” he said, though that’s not yet clear. is not.
Last month, Chegg launched CheggMate, a new service built on ChatGPT-4. This will allow students to access customized content by speaking with her AI.
The university has accused Chegg of allowing students to cheat by accessing on-demand answers to course questions.
But educators face an even more serious challenge from ChatGPT, which allows students to write answers to college questions and complete essays for free.
Rosensweig calls the claim that Chegg enables students to cheat is “absurd” and claims that the company provides underprivileged students with support that would otherwise be inaccessible.
“It has nothing to do with looking for answers,” he told the Financial Times last year. The way they are using us is learning.”
