AI fears hit these stocks this earnings season - was the selling pressure overdone?

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ChatGPT has had a dramatic impact on the earnings season for the first time as investors try to weigh which stocks face could face an existential threat from AI products and services.

Online learning firm Chegg (NYSE:CHGG) plunged nearly 50% last trading week after management warned that ChatGPT had a negative impact on new customer growth beginning in March with student interest spiking in the new AI tool. The fear is that ChatGPT may replace some of Chegg’s (CHGG) services relied on by students. Of note, CHGG’s second quarter outlook fell short of consensus estimates and the company did not provide full year guidance.

Roundhill Investments believes that consumer-facing companies like Chegg (CHGG) are more at risk of disruption than enterprise software providers.

“Consumers have significantly less switching costs than enterprises and can jump from application to application as they feel. In this instance, ChatGPT is now providing them a better (and free) alternative to Chegg’s services, and so they can move fairly quickly to the new hotness.”

Bank of America took stock of the ChatGPT-inspired share price moves with a double upgrade on Pearson (PSO) to Buy from Underweight and a price objective cut on Chegg . The AI read-across to Pearson (PSO) was called overly harsh by BofA after the stock fell more than 7% for the week, while Chegg (CHGG) is seen having a tough path to recover in the near term. BofA also defended its Buy rating on RELX (RELX), which fell more than 8% on AI worries. RELX was called a company that is well-placed to weather competitive threats borne from generative AI.

ChatGPT and AI innovation isn’t going away. Add your own thoughts on how to play the AI disruption in the comment stream.