The artificial intelligence (AI) revolution is in full swing and I think there will be a fair few business models disrupted by this technology in the coming years. Indeed, there already have been some, including penny share Chegg (NYSE: CHGG).
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!
Should you invest £1,000 in Chegg right now?
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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.
