Chegg Pivots to AI Model Training Amid Core Business Collapse

What happened

Chegg announced an expansion into AI model training, offering its proprietary data and subject matter expertise to help organizations train and evaluate AI systems, particularly in STEM. This comes as the company's core academic subscription business faces structural decline from Google AI Overviews and generative AI substitution, with traffic down 39% and revenue falling 49% in Q4 2025. The new initiative is a strategic attempt to monetize Chegg's assets differently, but the DeepValue report rates the stock a Potential Sell, citing a bear case of $0.35 per share if traffic declines accelerate. The pivot may provide a new revenue stream, but it is early-stage and unlikely to offset the severe decay in the legacy business. Without demonstrable revenue from AI training and stabilization in Academic Services, the risk of delisting and liquidity constraints remains high.

Implication

If Chegg can scale AI training revenue and stabilize Academic Services declines, a new growth path may emerge. Wait for tangible proof: Q1'26 results meeting guidance and AI revenue exceeding $5M quarterly before considering a position.

Thesis delta

The thesis shifts from 'pure structural decline' to 'pivot attempt amid decay,' but the new AI training business introduces upside optionality. However, the probability of success is low given execution risk, and the core thesis of irreversible traffic loss remains dominant. The bull case now depends on AI training gains alongside Academic Services stabilization, a narrow path.