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Friday, May 17, 2024

Another scary AI side effect?


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Investors are taking note of the unanticipated consequences of the speedy adoption of AI – evidenced by the sharp plunge of California-based education company Chegg, who warned that its ChatGPT tool is diminishing the number of students enrolling in their services. This is having a domino effect, causing British education giant Pearson to experience the worst market performance in over a year.

The technology sector has mostly seen the AI craze as a benefit, with Nvidia’s shares spiking as a result of the demand for their chips for chatbots, and tech giants Microsoft and Google in a race to incorporate generative AI into their products. But the ones taking a hit are starting to become more visible. Teleperformance, a French call-centre operator, declared that 20-30% of their calls could be automated in the coming three years.

Management, investors, and even regulators are trying to comprehend how ChatGPT might modify business models,” commented Russ Mould of AJ Bell. “Nobody knows what’s coming next or when, and this is something that investors should consider when assessing the value of a stock.”

AI can be used by companies to reduce costs – IBM announced that they will stop hiring for jobs that can be replaced by AI in the future. Generative AI can also be utilized in publishing, helping editorial teams working with tight deadlines. In addition, AI’s quick answers can increase the time users spend on a search engine homepage, and this is beneficial for the engine itself, but could bring loss of income for websites relying on clicks and commissions.

Tuesday saw Chegg’s stock plummet up to 49%, its biggest intraday drop ever, and Pearson’s shares dropping 11%. Other education stocks also had a rough day – Duolingo went down 12%, Adtalem Global Education by 10%, and 2U by 11%.

Davy’s Head of Equities, Aidan Donnelly, suggested that the market’s response might be excessive. “In the long run, the demand for education won’t change. Some of the reactions in the share prices could be an overreaction based on the current sentiment in the market,” he said.

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