Season 5, Post 17: Did Chat-GPT steal my homework?
Teachers the world over will have heard almost every excuse possible for why their pupils have failed to do the homework set. This trend may become a thing of the past should generative AI solutions such as Chat-GPT provide a helping hand for students. Shares in Chegg, a leading provider of learning services, saw an almost 50% decline yesterday as the company noted the “significant impact” that Chat-GPT was having on new subscriber additions to its service. Other listed educational services businesses also suffered, with Pearson, for example, losing 15% of its value.
We have been writing about the disruptive impact of AI all year and recently appeared on television to discuss it. Our view is twofold: from a societal perspective, we should think of AI as a complement rather than a substitute. From an investment perspective, we believe that we are currently at peak interest (or hype), which can lead to correspondingly exaggerated share price movements.
The Chief Executive of Chegg spent much of his time on Monday’s earnings call discussing the impact generative AI could have on its business. We are sympathetic to the view enunciated that services such as Chat-GPT can provide necessary but not sufficient solutions to users. In the context of education, chatbots can clearly deliver answers to questions posed by curious students. Whether pupils, however, will learn from chatbots is open to debate. Chegg noted that “AI is our future” and so is correspondingly integrating it into its own products. The optimal scenario envisaged by Chegg would see students use a generative AI solution that would recognise that each student has different learning requirements and so needs to study in a unique way. Tailored solutions can result in better learning outcomes.
We have no doubt that AI is already changing every sector of the economy. Companies need to adapt in order to remain relevant. A recent study shows that out of every 10 US workers, 6 will have at least 10% of their work tasks affected by generative AI and that 2 could have over 50% of their work tasks impacted. This is clearly non-trivial and may only be the beginning. It is notable that IBM, a long-standing leader in corporate AI solutions, believes that 30% of its back-office roles could be replaced by AI in 5 years. The hope, of course, is that some of these workers are redeployed in more productive roles elsewhere. Only time will tell.
3 May 2023
The above does not constitute investment advice and is the sole opinion of the author at the time of publication. Heptagon Capital is an investor in Chegg and IBM. The author of this piece has no personal direct investment in the business. Past performance is no guide to future performance and the value of investments and income from them can fall as well as rise.
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Alex Gunz, Fund Manager
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