What happened

Shares of UiPath (PATH -3.09%), Shutterstock (SSTK -3.18%), and Duolingo (DUOL -8.54%) have seen big losses in this week's trading amid concerns that artificial intelligence (AI) will disrupt their businesses. The companies' share prices were down 8.4%, 9.5%, and 23.1%, respectively, as of 10:30 a.m. ET, according to data from S&P Global Market Intelligence.

Online education services company Chegg published its first-quarter results on Monday, and while the company's sales and earnings for the period were better than anticipated, CEO Dan Rosensweig stated that OpenAI's ChatGPT was now hindering the business's customer growth.

The warning from the executive triggered wide-ranging sell-offs for companies that could feasibly see negative impacts from disruptive AI technologies. UiPath, Shutterstock, and Duolingo were among those to see significant valuation pullbacks.

So what

OpenAI's ChatGPT chatbot has delivered a revolutionary step forward for what's possible with generative AI technologies. By feeding the software questions, prompts, and parameters, users can receive high-quality responses and content creation.

Facing pressure from ChatGPT, Chegg opted to suspend its full-year performance targets, and the company's share price quickly fell more than 40% in the next day of trading. The dramatic sell-off also had a noticeable contagion effect.

Duolingo is a language-learning services company, operating in an industry vertical adjacent to Chegg, and investors are clearly worried that ChatGPT and other AI services could diminish its growth potential. But it's not only online-education companies that are feeling the squeeze from the rise of chatbots and other AI technologies.

Shutterstock actually has a partnership with OpenAI and has been working to integrate AI-generated content into its platform. But the partnership with the AI pioneer clearly hasn't been enough to put investors at ease about potential risks of disruption. It looks as if AI-generated content will continue to improve and become more popular, and that poses a significant threat to Shutterstock as it currently exists. While the company could eventually become a bigger player in AI content generation, its current business model revolves primarily around stock images, music, and videos.

Low-code software specialist UiPath's outlook has also been called into question by ChatGPT's capabilities. UiPath provides tools that make it possible for users to easily put together basic software applications and automate tasks without any deep coding knowledge, but these capabilities may now look less compelling given the evolution of advanced chatbots. ChatGPT has already proven capable of coding, and its capabilities will likely continue to improve with new version updates.

The rise of generative AI is still in its early stages, and industry is just starting to feel its impact. While the market might be overreacting to potential threats from ChatGPT and other technologies in some cases, investors should carefully consider the impacts that generative artificial intelligence technologies could have on companies in their portfolios.

Now what

AI is on track to be this century's most revolutionary and disruptive technology trend, and it could leave a trail of broken companies and business models in its wake. Generative artificial-intelligence tech will produce some incredible winners, but it will likely also seriously weaken many businesses and render plenty of others completely obsolete.

Because developing and running AI software tends to be both resource and data intensive, many small companies are at a significant disadvantage. Large, well-funded tech companies have significant head starts in the space along with access to top development talent and data sources. Smaller software companies, on the other hand, could find the evolving landscape increasingly difficult to compete in.

So investors should consider the risks that generative AI poses to UiPath, Shutterstock, and Duolingo. While each of these companies operates in a different industry and has some laudable competitive strengths at present, ChatGPT and other generative AI technologies have proven to be incredibly versatile, and the playing field appears to be changing at a rapid pace. In general, the rise of generative AI tech is making it riskier to invest in small software companies.

Chegg appears to have fired the first warning shot about threats that artificial intelligence poses to smaller software players. It's reasonable to expect that more companies will soon be making comments indicating that they're facing headwinds due to the increasing popularity of generative AI. This doesn't mean that ChatGPT and other AI tech will completely disrupt every smaller software company, but many businesses will face tougher growth environments.