Chegg and Pearson Stocks Crash as AI-powered Chatbots Like ChatGPT Grow

Shares in companies that specialize in publishing school textbooks and offering online classes took a big hit on Tuesday amid signs that AI bots like ChatGPT are eating into their business.

Silicon Valley-based Chegg, an education technology company that offers online homework help and textbooks, had its CEO admit Monday that the explosion of generative AI chatbots had hurt revenue.

“In the first half of the year, we didn’t see a noticeable impact on our new account growth with ChatGPT and we met expectations for new signups,” Chegg CEO Dan Rosensweig told analysts Monday.

“Since March, however, we have seen a significant spike in student interest in ChatGPT. We now believe that this is having an impact on the rate of growth of our new customers,” he added.

More specifically, the 18-year-old company reported a seven percent drop in sales in one year, as well as a five percent drop in subscribers.

The entry sent shockwaves through the ed tech sector, pushing Chegg’s share price down nearly 50 percent and hitting peers such as UK-based Pearson, which lost 15 percent in London.

The CEO claimed that the transition of students to ChatGPT was seamless, and that customers who retained their faith in the company’s products “continue to choose us and hold us in high esteem.”

He also said it launched its own AI-powered tool called CheggMate, tailored for students and based on GPT-4, the latest iteration of technology created by Microsoft-backed OpenAI, which supports ChatGPT.

Chegg has faced the same accusations leveled at ChatGPT in the past for providing ready-made cheats for students, especially during the Covid-19 pandemic, when exams largely took place online without teacher supervision.

While ChatGPT-style AI has largely been hailed as a boon for the economy, the collapse of education tech stocks was the clearest example yet of technology’s ability to attack a company’s bottom line.

Because of the technology’s untested nature, experts believe that the businesses most vulnerable to AI right now are businesses that require little specialization — like call centers or tutoring services offered by Chegg and others.

So far, “you’re only seeing very specific tasks that people are willing to delegate to generative AI,” said Vishal Gupta, an assistant professor at the USC Marshall School of Business.

These missions are “lower stakes” because of the uncertainty associated with the technology, he added.

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