Leading U.S. investment bank Morgan Stanley (MS) has downgraded Chegg (CHGG) stock to a Sell-equivalent “Underweight” rating on concerns about the impacts of artificial intelligence (AI).
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Analyst Josh Baer said he sees deteriorating third-party data trends and a challenging competitive environment ahead for Chegg, an education technology company that provides online tutoring, homework help, textbook rentals, and other services to students.
Baer has set a price target of $1.25 on CHGG stock, which he says reflects concerns about declining revenue and margins at the company. The downgrade comes after Chegg reported that traffic to its website and its app downloads weakened in the final months of 2024.
AI Threats
Online services such as those provided by Chegg are viewed as ripe for disruption by AI. In his note to clients, Baer at Morgan Stanley said that he expects intensifying competition from AI-driven content to further erode Chegg’s market position as students move away from the service.
Looking out at this year, Morgan Stanley forecasts negative revenue growth for Chegg and says that the market is underpricing demand risks for the company. CHGG stock has declined more than 85% in the last 12 months and currently trades for $1.49, placing it far down on the penny stock league tables.
Chegg has been treated as a meme stock at various times in recent years, and its share price was briefly above $100 back in 2021.
Is CHGG Stock a Buy?
The stock of Chegg currently has a consensus Moderate Sell rating among nine Wall Street analysts. That rating is based on six Hold and three Sell recommendations assigned in the last three months. The average CHGG price target of $2.21 implies 48.32% upside from current levels.
