As I’ve noted previously, artificial intelligence (AI) will be tremendously positive for most companies. That’s because the technology will enable companies to provide their customers with better service, more efficiently make and transport products and acquire new customers much more efficiently and effectively. However, AI will badly hurt other firms because the technology will make their services partially or completely obsolete. One example involves companies whose main function is to provide computer programmers. As is well-known, AI makes computer programming quite easy, enabling the average Joe to become a coding whiz. Therefore, firms won’t need to hire many outside computer programmers.
Other sectors likely to be badly hurt by AI include educational software providers and companies that conduct clinical trials for drug makers. Investors should certainly avoid betting on the stocks of the companies in those sectors. Here are details about three companies at risk from AI, For risk-tolerant investors, these firms could be worth betting against over the long term.
ICON (NASDAQ:ICLR) helps drug companies select the best molecules to try to turn into drugs, and carries out clinical tests for drug makers.
But using the power of AI, it’s possible to more easily pick molecules that have much greater chances of becoming successful drugs than in the past. One of the leaders in the field of using AI to select drug candidates, Schrodinger (NASDAQ:SDGR), explained that it uses AI and physics to allow “discovery of high-quality, novel molecules more rapidly, at lower cost, and we believe with a higher likelihood of success compared to traditional methods.”
Since AI can be used to more easily select molecules with greater odds of becoming drugs, pharmaceutical companies will start using AI to pick drugs rather than ICON’s more traditional methods.
And because AI greatly enhances the chances of picking successful drugs, I believe that, in a few years, fewer clinical trials will be needed to determine whether or not treatments are safe and effective. That change, of course, will greatly undermine ICON’s work.
But as I mentioned in the introduction to this column, AI makes programming much easier. Indeed, the technology allows software to be developed “using the same language that they use when they talk to other people,” Microsoft (NASDAQ:MSFT) explained.
Moreover, companies can use AI to automate and simplify many other areas of IT.
Given these points, it seems obvious to me that most companies will be able to handle the vast majority of their IT tasks on their own. Of course, that makes INFY one of the companies at risk from AI and does not bode well at all for the company’s outlook.
Chegg (NYSE:CHGG) sells educational software that helps students learn. But earlier this year, the firm admitted that students were abandoning the company’s software and using AI-powered ChatGPT instead.
In May, CHGG unsurprisingly admitted that the technology was hampering its growth. In fact, its revenue sank 7% year-over-year in the first quarter.
In response, Chegg invested in AI and launched its own “generative AI experience” for students. But with so many chatbots available and some of them free, I believe Chegg will continue to have a hard time generating revenue growth going forward.
Supporting my thesis, the company’s subscription services revenue dropped 5% last quarter versus the same period a year earlier, while its subscriber base sank 9% year-over-year. The company also generated a loss from operations of $18.7 million. In Q2 of 2022, its operating income came in at $7.34 million.
On the date of publication, Larry Ramer held a long position in SDGR. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.