The rise of artificial intelligence and ChatGPT could massively hurt Chegg 's core business, meaning the stock could be in for sharp declines, Jefferies said. Jefferies downgraded the stock to hold from buy and cut its price target to $11 per share from $25. The new target price represents 37.5% downside from Monday's $17.60 close. The company reported quarterly results Monday, with a slight beat on adjusted earnings per share. But, management sounded the alarm on the threat AI poses to Chegg's business, telling investors that ChatGPT is beginning to hit customer growth metrics. CHGG YTD mountain Shares of Chegg plunged more than 43% in premarket trading on Tuesday. "While retention rates of CHGG's existing customers remain strong now, we fear that student usage of AI tools like ChatGPT could cause a viral sensation around campus (just like CHGG had benefited from), which could increase churn in the coming quarters," Jefferies analyst Brent Thill wrote. Shares of Chegg fell more than 43% in premarket trading Tuesday. Thill said that while Chegg plans to embrace AI with its CheggMate product, the pace and depth to which the company plunges into AI isn't yet clear. The company's AI product is in collaboration with OpenAI, the developer of ChatGPT. "While CHGG plans to launch the CheggMate beta this month to a select few, the timing of a full launch is unclear," he said. "We don't expect there to be any meaningful impact from CheggMate in FY23, believing any potential impact won't show up until FY24 at the earliest." — CNBC's Michael Bloom contributed to this report.
