ChatGPT popularity impacts US tech company, almost 50% market value wiped off

Generative AI tool ChatGPT has caused a massive slump in the shares of US education services provider Chegg Inc. The share price dropped over 47 per cent on Tuesday, due to concerns that the use of the viral chatbot ChatGPT was pressuring Chegg's subscriber growth.

The ed-tech company Chegg suspended its full-year outlook and signaled that the increasing popularity of ChatGPT was impacting its new customer growth rate.

Chegg CEO Dan Rosensweig said that since March, there had been a significant spike in student interest in ChatGPT, which analysts fear could affect the company's core business as consumers opt to use free artificial intelligence tools instead.

Last month Chegg announced its own AI tutor called CheggMate. It is a study aide tailored to students' needs. The new AI tool is set to launch soon, but it is unclear if it will be enough to counter the slowdown in Chegg's core business.

According to a report by Reuters, Analyst Brent Thill at Jefferies downgraded the stock to "hold" and warned that Chegg's core business could become extinct. Chegg's UK rival, Pearson PLC, also saw a drop in its shares by nearly 11.5 per cent on Tuesday.

Chegg said it was suspending its full-year outlook due to uncertainty about the impact on results and targeted second-quarter total revenue between $175 million and $178 million, which fell short of Wall Street expectations of $186.3 million. If losses hold through the session, Chegg's market capitalization would drop by $994 million. The report cites Analyst Arvind Ramnani at Piper Sandler saying that Chegg has to make significant changes in a rapidly changing environment.

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