ChatGPT has claimed its first scalp.
Shares of Chegg (CHGG 0.07%) were cut in half Tuesday after the education technology company known for renting textbooks and helping students with their homework said new user growth ran into a wall due to OpenAI's new chatbot.
On the earnings call, Chegg CEO Dan Rosensweig said:
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. 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.
The comments seemed to be the first time a company revealed that ChatGPT was having a major impact on its growth, and Wall Street was quick to reassess Chegg stock, a sign that there are likely to be more stock market victims of the new technology.
Let's take a look at three other stocks that are potentially in ChatGPT's firing line.
Image source: Getty Images.
1. Alphabet
It's no secret that ChatGPT has its sights set on Alphabet's (GOOG 0.94%) (GOOGL 1.01%) Google Search.
Microsoft (MSFT 1.66%), which has invested an estimated $13 billion in OpenAI, has already rolled out a new version of Bing, featuring ChatGPT-like capabilities, which it said gained market share in the March quarter. According to The New York Times, Alphabet called a "code red" in response to ChatGPT's release as well, and founders Larry Page and Sergey Brin have come out of retirement to pitch in on strategy to help the company fight back against the new threat.
The tech giant has launched its own AI-powered chatbot called Bard. However, public opinion seems to have cast it as an also-ran next to ChatGPT. Alphabet CEO Sundar Pichai has said a better large language model (LLM) was coming to Bard to improve its results, admitting of Bard's launch, "I feel like we took a souped-up Civic and kind of put it in a race with more powerful cars."
While much of the investor attention has been focused on the new battle between Google and Bing in search, it's worth recognizing that ChatGPT is, in and of itself, a direct threat to Google, as it can give clear answers for many of Google's most popular search verticals like recipes, travel itineraries, home improvement tips, and medical advice.
Alphabet's first-quarter earnings report didn't give any indication that it was losing market share to Bing or ChatGPT, but the threat from the new chatbot is clear, as Alphabet's own response makes evident.
2. LegalZoom
Of the many industries under threat from ChatGPT and generative AI, the legal industry seems to be one of the biggest.
Already, some pundits are forecasting significant disruptions in the legal industry, especially in areas like contracts and research, as the chatbot can write and assist with legal contracts and can digest large amounts of information and summarize it clearly for a legal brief. ChatGPT has also passed the bar exam, showing it has the knowledge and understanding necessary to be a lawyer.
If the generative AI tech gains adoption inside the legal industry or with those who would typically pay for help with a contract or a small legal matter, one company at risk is LegalZoom (LZ 2.56%), a tech platform that helps people with low-level legal matters like business formations, estate planning, patent applications, and others.
LegalZoom hasn't yet reported first-quarter earnings, but the market seems to believe that the news from Chegg could hold implications for it, as the stock fell as much as 8% on Tuesday, even though there was no related news.
3. Duolingo
Another education stock that could get steamrolled by ChatGPT is Duolingo (DUOL 6.73%), the popular language-learning app.
Some language learners have raved about ChatGPT's capabilities, as the AI technology can guide users in areas like vocabulary, grammar, conversation, and reading comprehension.
Seemingly aware of the threat from ChatGPT, Duolingo has already integrated the GPT-4 LLM into its new program, Duolingo Max, a subscription tier above Super Duolingo. Duolingo also said it's been working closely with OpenAI for months on the product, which launched in March.
Like most other service providers threatened by ChatGPT, the test for Duolingo will be if customers prefer to pay it for a neatly packaged product featuring ChatGPT technology, or if they'd rather go straight to the source and learn directly from ChatGPT for free, which could require more work from the user.
Duolingo is also set to report earnings next week, and like LegalZoom, investors seem to fear it could be exposed to the same risk as Chegg, as the stock fell as much as 10% on Tuesday.
As the market's response to the Chegg update shows, the fallout from the impact of the new AI chatbot is likely only just beginning. Investors should be wary of these three stocks and any others already threatened by the new generative AI.
