Who’s the next Chegg? A.I. could threaten the main revenue sources for these companies

Published Tue, May 2 20231:34 PM EDT

Tuesday's selloff in Chegg shares exposed some investors to the dark side of artificial intelligence, igniting concerns about how the latest technology craze may be putting some companies' revenue sources in danger. The latest tumult for the education technology stock kicked off Monday evening after management highlighted how ChatGPT is hindering its growth. Shares were last down more than 49%. "In the first part of the year, we saw no noticeable impact from ChatGPT on our new account growth and we were meeting expectations on new sign-ups," Chegg CEO Dan Rosensweig said during Monday's earnings call. "However, 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." CHGG 1D mountain Chegg shares plummet on AI risks While Chegg may be the first shoe to drop, it's certainly not the last company set to showcase some of the risks posed by AI. IBM CEO Arvind Krishna told Bloomberg News Monday that the company plans to pause hiring, noting that AI could replace about 7,800 jobs. Elsewhere, Geoffrey Hinton, known as the "godfather of AI," said this week he's left his position at Google to warn of some of the technology's risks. Looking ahead, some industries may face greater threats than others. Goldman Sachs estimates about a fourth of current work tasks can be automated using AI, with office and administrative support and legal among the areas most exposed to automation risks. "AI could actually be a catalyst, but right now the Street's essentially on the fence in terms of who the winners and losers are outside of the big tech arm," said Wedbush Securities' Dan Ives. "This is all a fork-in-the-road period in terms of figuring out who the winners and losers are." Who's at risk from AI Firms like Atlassian and Gitlab may face some of the biggest threats ahead, given AI's ability to write software, said Baird's Ted Mortonson. "Longer term, the thought is that puts pressure on the number of developers you need and the number of seats you retain," the analyst said. Elsewhere, Deepwater Asset Management's Gene Munster sees potential risks ahead to some consulting companies known to outsource work for other businesses. AI may enable many reliant businesses to complete some harder-to-do tasks internally, he noted. Similarly, greater artificial intelligence use may dry up the need for some outsourced work via independent contractor sites like Fiverr and Upwork , Munster added. Embracing AI Call centers represent another area ripe for disruption, but that all depends on how, and whether, they embrace artificial intelligence, said Ives. Doing so could turn this gut punch into a future catalyst for many of these names. Companies operating off of seat-based models, such as human resources companies, may face headwinds from declining headcount, but could benefit long term from optimizing AI, he added. To be sure, even the largest companies dominating the space and poised to prosper from AI face risks ahead. "Like any model, LLMs and data-lakes are subject to the risk of bad data, or garbage-in-garbage-out, which is also a huge risk," said Needham's Scott Berg in a recent note. — CNBC's Michael Bloom contributed reporting