Chegg Inc. tumbles as much as 48%, its biggest drop since November 2021, after the online educational services company warned that ChatGPT was threatening growth of its homework-help services, making it one of the first companies to highlight generative AI’s negative impact on business. Jefferies cut the recommendation on the stock to hold from buy, saying the AI overhang is starting to impact fundamentals. 

Eoin Treacy's view

I’m attending the MIT Technology Review Emerging EMTech Digital conference at present. There have been some very interesting and educative presentations. The consensus is generative AI models are an innovation on the scale of the steam engine.

With that as a background, the law of jungle is clearly in effect. Microsoft is in full move “fast and break things” mode. Other companies are playing catch up and some are trying to be measured in how they consider ethics and bias. There is a widespread acceptance that the sector would not exist without Meta’s decision several years ago to open source its data.

The market has voted in favour of Microsoft’s approach. The share is still trending higher, but the valuation is rich at a price/sales of 10.9 and P/E of 31.88.




C3.ai’s CEO gave a very entertaining and engaging presentation full of name drops but the share is trending down. CS Disco is a company that has promoted itself as an AI assistant for lawyers. The share is also trending down. Both Chegg and 2U are trending downwards as well.

This comment from Christopher Wood’s Greed & Fear is also relevant. “And on this point GREED & fear hears that AI servers use five to six times more DRAM than a regular server. This is because, so far as an ignorant GREED & fear understands it, AI is a function of pattern recognition which requires massive computing power to process all the data.

And

…this quarter Nvidia is benefitting from mainland China demand for so-called A800 GPUs. These have been designed not to come under the US ban unlike the normal AI chips sold by Nvidia. These so-called “work around chips” have the same specs as the A100 GPUs but a slower memory interface which means more have to be purchased for the same level of computing power. With Chinese companies fearing, like the proverbial sword of Damocles, an extension of the current ban, they are buying all the A800s they can get their hands on. GREED & fear hears that this inventory accumulation can go for “several quarters”.

Samsung Electronics is by far the largest producer of DRAM in the world. The share is currently steadying in the region of the 200-day MA but needs to hold the $1100 area if the benefit of the doubt is to be given to the recovery.
Nvidia is already a very expensive share on a price/sales ratio of 26 and P/E of 60. The price is short-term overbought, so the risk of a deep consolidation is rising.

The race is on to create products and charging models to monetise the services AI can provide. In Microsoft’s ecosystem that will look like PowerPoints being created from text inputs or excel create RFPs from data tables.

The bigger challenge for smaller companies will be survival through the valley of a recession. High growth companies need access to cheap funding to fuel expansion. That’s in short supply right now and investors demand aggressive growth multiples, not hand wringing over bias. Perhaps the biggest challenge at present is the whole notion of bias is politically and socially loaded coming up with an acceptable answer is more difficult than ever.

This article from PWC highlights how they are spending $1 billion over the next few years to help companies build AI into the plumbing of their organisations. With the big questions about public and private data, this seems like one of the most likely success stories for the technology.