The decline in shares of two major online education companies exceeds 10% due to the increasing popularity of ChatGPT among students.

Online education companies are experiencing a decline in shares due to the rapid growth of artificial intelligence.

On Tuesday, both stocks experienced a decline of over 10% after releasing unsatisfactory guidance, which was partly attributed to the use of AI tools like ChatGPT by students.

Chegg, after appointing a new CEO, forecasts second-quarter revenue to be between $159 million to $161 million, lower than the $174 million predicted by analysts surveyed by LSEG.

Jefferies lowered its price target for the stock to $4 from $7 and downgraded it from hold to underperform, indicating a potential 2% decline from Monday's closing price.

Analyst Brent Thill wrote in a note Tuesday that he questioned the ability of CHGG to sustain growth as free AI tools emerged as a more appealing option than a paid CHGG subscription.

Nearly 50% decline in year-to-date performance for Chegg, with a 19% drop on Tuesday.

Nathan Schultz, who will become the new CEO on June 1, highlighted the company's progress in generative AI during the conference call.

The proliferation of AI presents a transformative moment for Chegg, as we uniquely harness its potential in education, he said.

Thill raised the issue of whether users would be willing to pay for AI when they can obtain it for free from other sources.

"Although CHGG has consistently outperformed free competitors in the marketplace, we believe the AI wave presents a genuine opportunity for CHGG's paid subscription to offer a comparable free product experience," he stated.

Coursera anticipates second-quarter revenues between $162 million and $166 million, below the $178 million consensus estimate, and expects earnings before interest, taxes, depreciation, and amortization for the quarter to be between -$2 million and $2 million, versus the $5 million expected from analysts polled by StreetAccount.

On Tuesday, Coursera's shares dropped by 13%, resulting in a 46% decline for the year 2024.

Coursera, too, is trying to use AI to its advantage.

While Wall Street generally maintains a positive outlook on the stock, some firms have reduced their price targets. For example, RBC Capital Markets retained its outperform rating on the stock but lowered its price target from $25 to $18, indicating a potential 51% increase from Monday's closing price.

Rishi Jaluria, an analyst, wrote in a note on Tuesday that although they believe GenAI content/products and international self-help (e.g., local payments) will provide a lift, they anticipate some investor pushback on the 2H acceleration now embedded in guidance until gaining more visibility.