How artificial intelligence could threaten major industries and business models
by trendswire · 26 May 2023
The launch of ChatGPT at the end of 2022 ushered in a new era of technological innovation that few people imagined. As the tool gained traction, reportedly reaching 100 million users in about two months from its launch, Wall Street praised the generative AI, calling its debut akin to the launch of the iPhone in 2007. At first By sight, companies like Alphabet and Microsoft seemed poised. to capitalize on AI, while chipmakers that create the tools that underpin big language models experienced inventory surges. Nvidia’s explosive quarterly printout this week only furthered the investment case for AI. GOOGL MSFT YTD Mountain Alphabet and Microsoft so far this year Wall Street is just beginning to discern the investment potential of AI’s big winners, with Goldman Sachs forecasting that the technology is capable of generating $7 trillion in global economic growth over the next few years. next 10 years. But not all sectors will benefit equally, and the sale of nearly 50% in online education provider Chegg following its quarterly earnings earlier this month illuminated the downside risk to AI and the challenge it poses. in some industries. Chegg CEO Dan Rosensweig said in a conference call earlier this month that interest in ChatGPT has increased among students, a move the company believes is affecting its new customer growth rates. Chegg looked like the first soldier to fall in the growing AI war, forcing Wall Street and the investment community to reconsider the downsides of this seemingly flawless technology and how it can jeopardize longstanding business models and lucrative sources. from income. CHGG 1M mountain Chegg stocks over the past month The thinking now is that no part of the economy can hide from AI. Businesses, from manufacturers to popular retailers, have begun to embrace technology to improve their products. However, some companies face more dangers than others and great challenges to overcome. Freelance marketplace AI chatbots capable of generating content pose significant risks to the freelance marketplace as bots improve, with the potential to replace the need for services that connect job seekers like Fiverr and Upwork. RBC Capital Markets analyst Brad Erickson highlighted in a recent note that AI could indeed boost these companies in the long run and improve productivity, but argued that AI concerns are likely to put pressure on stocks over the long term. short term. “Overall, we agree with management’s comments about how AI is actually driving demand versus how it is more likely to displace it, but given the activity and innovation in the space, it seems likely that this is the target.” set in stone for the foreseeable future that makes multiple expansion seem unlikely, in our view,” he said, lowering his price targets for the shares. During an earnings call earlier this month, Upwork highlighted the ways it’s leveraging AI to improve its platform. CEO Hayden Brown responded to analyst concerns about AI and its implications for the independent company, highlighting new developments at Upwork and why AI creates a “huge opening” for the company. “I would like to stress that today we are not seeing any negative impact from AI,” Brown said. “And as we look at the work that’s happening on the platform, some of the most exciting things we’re seeing are in almost every category that we serve, talent is using AI tools to augment their workflows.” Within the freelance sector, BTIG said the impacts of AI will differ by field. These tools could potentially boost demand in areas like machine learning and engineering, while hurting writing, design and customer service jobs, a survey by the firm showed. UPWK YTD Mountain Upwork Stocks Year-to-Date Education Services After the Chegg sell-off in early May shed light on the detrimental effects that ChatGPT poses to some business models, many Wall Street analysts saw education services at risk interruption special. As Chegg risks losing its homework help solution to AI, educational publisher Pearson is vulnerable to AI disruption if some students trade textbooks or eBooks for homework help tools, including ChatGPT, said the Redburn equity research firm. Many students, Redburn noted, opt for cheaper alternatives to course materials and seem less “concerned with privacy or ethical issues.” Meanwhile, limits on applicable copyright rules make it simpler to train AI tools. However, precision issues with the AI tools, Redburn said, could drive Pearson’s use case. Some tools are also being developed to detect AI-generated responses. Wall Street is turning more bullish on Pearson in the wake of a previous sell-off, and Bank of America recently upgraded the stock to a buy rating. Morgan Stanley moved the stock to an overweight rating, saying generative AI can enhance company value. As disruption issues persist, UBS expects increased volatility in the sector in the near future, although these companies should benefit in the long term from integrating new tools into their offerings. “Increased productivity and technological advancement should benefit edtech offerings in the long term, but there may be temporary dislocations or headwinds caused by new competition as companies build out their AI capabilities,” UBS said in a statement. recent note. PSO 1M mountain Pearson’s stock market performance over the past month As the use of AI grows, Wall Street also sees it as a tool teachers can leverage to teach new topics and identify students who are falling behind in coursework , while also providing the necessary improvement tools, Jefferies wrote analyst Brent Thill in a recent note. Online course platform Udemy is another edtech stock at risk from the rise of AI, Thill said, noting that consumers may turn to AI instead of its website to learn new tasks. At the same time, it could benefit consumers looking to improve their skills and create better content. Music Industry Record labels that rely on high royalty fees and copyright protections may face some significant hurdles as AI flourishes. In the distant future, music streaming companies like Spotify could leverage independent music created with AI tools to cut costs by spawning the next pop sensation themselves, Credit Suisse’s Douglas Mitchelson wrote in a recent note. WMG YTD Mountain Warner Music Group’s 2023 actions on AI-generated songs would also allow streamers to forego hefty royalty fees that stem from their current reliance on new content, potentially undoing a fundamental industry-wide practice. For major studios and labels like Warner Music Group and Universal Music Group, that means reversing a lucrative revenue stream used for decades, Rosenblatt analyst Barton Crockett said. Copyright issues are another major hurdle for music companies. Copyright laws and how they apply to AI are unclear in most countries, and some officials are even seeking to ease protections to encourage innovation, Redburn said in a recent note. Some potential copyright violations include reproducing an artist’s image or voice, and that could weaken catalog value for many music companies, analysts said. However, charging AI tools to use your material could create another potentially lucrative revenue stream for music companies, Morgan Stanley’s Omar Sheikh wrote in a recent note to clients. Website Builders Many small and medium-sized businesses rely on website builders to easily create and promote their online presence. But emerging AI tools may eventually replace some simple website design features that these companies specialize in. Despite such fears, other analysts view website builders including GoDaddy, Wix and Squarespace as AI beneficiaries, and Citi analyst Ygal Arounian recently viewed his struggling stock as a buy. chance. WIX YTD Mountain Shares Performance This Year “AI can democratize web building capabilities by putting more control in the hands of the user, because now it’s easier to build a website without professional help,” he said. “But for most web builds, building a site doesn’t stop there, and involves running a business and maintaining it on a regular basis.” Despite near-term concerns, Bank of America analyst Nat Schindler believes that Wix is especially well positioned to weather this volatility. “In our view, AI is unlikely to present a significant threat to Wix due to a lack of integration and customization,” he said in a recent note. “Wix benefits from more than [a] decade of optimization and a rich set of tools for creators that simplify the process.” Call center and customer service AI tools capable of replicating human agents present another hurdle for call centers or customer service companies. customers who often use live agents to respond to customers.AI could spell trouble for Five9, a provider of cloud software solutions used for customer engagement, by reducing demand on contact centers.Nice is another company at risk, and Jefferies’ Thill said in a recent report that she and Five9 are among the names most at risk from AI While AI tools may be able to handle simple interactions with customers, Nice recently highlighted that companies they require live agents to handle more complex needs, Oppenheimer analyst Timothy Horan said in a recent note. its 20+ years of labeled customer service data, position as market leader, strong balance sheet and weak competitors,” he said. Similarly, Deutsche Bank analyst Matthew Niknam noted in a recent note that AI presents more opportunity than risk and offers “undervalued. upside tailwinds” for Five9. FIVN 1M mountain Five9 shares over the past month And Morgan Stanley analyst Meta Marshall noted that speaking to a live agent remains important for both companies and clients. Marshall said in a recent note that Five9 is “aggressive in fighting [the] narrative that AI is negative for [Contact-Center-as-a-Service]instead of highlighting it as an opportunity.” — CNBC’s Michael Bloom contributed to this reporting
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