Chegg stock price suddenly wakjes up as AI disruption fears ease

Chegg (NYSE: CHGG) stock price made a strong comeback after the company published encouraging financial results. The shares surged by over 25% in extended hours as the firm shrugged off artificial intelligence threats to its business. 

Chegg’s strong earnings

Chegg share price plunged hard in May after the company published worrying financial results. At the time, the company warned that AI – and ChatGPT in particular – was having a negative impact on its business. In my article on Chegg back then, I argued that the sell-off was unwarranted. 

This view was confirmed on Monday when the company published strong results. In a statement, Chegg said that its revenue came in at $183 million in the second quarter, a 6% drop from the same quarter in 2022.

Chegg’s subscription revenue was $166 million while the number of subscribers in its platform jumped to 4.8 million. Gross margins improved to 74% while the company ended the quarter with over $808 million in cash and investments. Chegg’s management believes that its revenue will come in at between $151 million and $153 million in Q3 while its EBITDA margin will be between $34 million and $36 million.

I believe that concerns about AI’s impact on Chegg’s business will be limited. To a large extent, the company will actually benefit from the technology. For one, while many students are using ChatGPT in their education, many are not comfortable with the platform’s answers. 

As a result, demand for a human touch in education will always be there. Chegg will likely benefit in this since it is combining AI and human coaching. This is evidenced by the fact that the company’s number of users grew in Q2. Talking about the platform, the company’s CEO said:

“Our research also shows that 86% of students say that they prefer study help that is reviewed by human subject matter experts, and 85% say they wanted to be personalized to their individual learning needs.”

Chegg stock price forecast

Chegg chart by TradingView

Chegg share price has been in a strong bearish trend in the past few months. Precisely, the stock plunged from a high of $30.18 in December last year to a low of $8.63 in June, a ~70% decline. This decline happened as investors worried about the company’s disruption by ChatGPT and other AI models.

The Chegg stock price made a major comeback after the company published encouraging financial results. It rose to $12.43 in extended hours. This move was above the 25-day and 50-day moving average. It was also above the double-bottom level of $8.63. In price action analysis, a double-bottom pattern is usually a bullish sign.

Therefore, the shares will likely continue rising in the coming weeks as buyers target the next key resistance level at $15.09, the lowest point on March 23rd.