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.

The post Down 99%, this stock has been crushed by AI and is now a penny share! appeared first on The Motley Fool UK.

In 2021, this online education company had a share price of $113 and a market cap in the $14bn region. Now, those figures stand at $1 and $112m, respectively.

In other words, the stock has lost 99% of its value!

What the heck has happened?

For those unfamiliar, Chegg offers textbook rentals, online tutoring, study resources, and homework help, primarily for college students through its subscription-based platform.

Unfortunately for Chegg, these are the sort of things that students can increasingly get from AI chatbots for free. In fact, since ChatGPT was released in November 2022, the stock has crashed 96%. So there is a direct correlation.

In Q4 2022, the company reported revenue of $205m. For Q1 2025, it is now guiding for revenue of around $115m. So there has been a significant decline in the past couple of years.

Meanwhile, the number of subscribers has fallen from 5m in Q4 2002 to 3.6m in Q4 2024. Chegg has also turned unprofitable over this period, with an adjusted net loss of $160m on revenue of $617m last year.

Double whammy!

But here’s where the plot thickens, and not in a good way for Chegg. You see, the rise of generative AI bots like ChatGPT didn’t just threaten Chegg’s business model. It also posed a risk to Google’s search empire because people might get the info they want by asking an AI bot (thereby bypassing all those ads on Google’s search pages).

In response, the tech giant rolled out AI Overviews (AIO) in May 2024. These are AI-generated summaries that appear at the top of search results, providing users with concise answers to their queries without requiring them to visit external websites.

Alas, Chegg says AIO has had a “profound impact” on traffic flowing to its site. Non-subscriber traffic plummeted to negative 49% in January 2025, down significantly from the modest 8% decline it reported in Q2 2024.

As the firm puts it, “Google AIO has transformed Google from a “search engine” into an “answer engine,” displaying AI-generated content sourced from third-party sites like Chegg“. In other words, the firm is saying Google is using its proprietary content while driving less traffic to its site.

The company has announced it is suing Alphabet-owned Google.

Foolish takeaway

To be fair, Chegg is just chugging on with product development. It has integrated AI and machine learning into its product stack, while its language learning service (Busuu) is growing strongly.

At the same time, the company said its launching a “strategic review process“. That sounds like it might be open to a sale to me. If so, perhaps it will be acquired for a far higher valuation than $112m.

I wish Chegg luck, but this stock is far too risky for me.

More broadly, it serves as a cautionary tale of AI disruption. More than ever, I think it’s crucial to make sure the software/tech companies we’re invested in aren’t vulnerable to being disrupted by AI. The technology is likely to cause as much value destruction as creation.

The post Down 99%! This $1 penny share has been crushed by the artificial intelligence (AI) boom appeared first on The Motley Fool UK.