AI Transformations Threaten Major Companies: An Analysis
The days of racing to Blockbuster for the latest movie are long gone. Many younger individuals may not even recall this experience, highlighting how swiftly circumstances can change.
Blockbuster didn’t decline due to a lack of movie watchers. Instead, its downfall stemmed from new technology that altered consumer behavior. Netflix, Inc. (NFLX) revolutionized the industry, leaving Blockbuster unable to adapt.
Today, only one Blockbuster remains, located in Bend, Oregon, serving as a nostalgic tourist spot and a stark reminder of the pitfalls of ignoring technological advancements.
Blockbuster’s fate isn’t unique. Consider Eastman Kodak Co. (KODK), which faltered by failing to pivot to digital cameras, or BlackBerry Ltd. (BB), which stubbornly held onto its keyboards while the world embraced touchscreens.
Today, we’re witnessing similar shifts, but at a faster pace driven by artificial intelligence (AI). The disruption of past decades now occurs within months, reshaping entire industries.
This brings us to what I term the Economic Singularity, a period where AI fundamentally changes job structures and wealth creation.
Companies built on past successes are increasingly vulnerable as they struggle to keep pace with innovation. Signs of distress have already emerged for prominent firms unable to adapt.
In today’s Market 360, I will highlight three companies facing significant threats from AI. Additionally, I’ll provide insights on businesses poised for success in this evolving landscape.
1. An Education Tool Gets a Failing Grade
Once considered essential for students needing academic assistance, Chegg, Inc. (CHGG) is now facing challenges. AI tools like ChatGPT offer free and instant support, causing Chegg to lose customers.
The company announced on May 12 that it would reduce its workforce by 22%, marking its third major layoff in under a year. Furthermore, Chegg has filed a complaint against Alphabet Inc. (GOOGL) for allegedly diverting its traffic.
Chegg’s slow adaptation to AI has resulted in a Total Grade of “F” in my assessment, making it a Strong Sell.
2. A Gallery With No Visitors
For high-quality images, Getty Images Holdings Inc. (GETY) was once the go-to source. However, the rise of generative AI allows users to create custom images without the hefty licensing fees Getty charges.
In response, Getty is shifting its strategy to incorporate generative AI technologies. Nevertheless, declining margins indicate that the company’s most profitable days may be behind it.
Getty holds a D-rating in my assessment, suggesting that investors should consider alternatives.
3. The Court Is In Session
Launching a small business typically required significant legal support, a burden LegalZoom.com Inc. (LZ) alleviated with its simpler approach. Yet, AI is making the process even easier, intensifying competition.
Analysts forecast a 5.5% decline in LegalZoom’s business formations for Q1 2025. The company is exploring a subscription model targeting higher-value clients, which led to a 115% increase in net income to $30 million in 2024. However, market perceptions may still lag behind.
LegalZoom currently receives a C-rating, indicating a hold as its prospects remain uncertain.
Where to Find the Winners
The emergence of AI is an immediate reality, reshaping various sectors. Many businesses face the challenge of adapting to this rapid shift, as they often lack the necessary structural flexibility.
The key takeaway is that businesses must remain vigilant and prepared for these technological transformations to stay relevant in the evolving market landscape.
# Preparing for the Economic Singularity: Opportunities and Challenges Ahead
The transformation underway in the economy signifies a major shift, known as the Economic Singularity. This change will create winners and losers in the market.
It’s essential to recognize that while many may face challenges, the waves of change are unstoppable. Planning for this shift is wise, and there are opportunities to be seized.
The upcoming Economic Singularity represents a significant reset for market dynamics. It poses a risk of making many traditional jobs for regular Americans obsolete.
Currently, the impact may not seem drastic. However, it’s crucial to remember that companies like Blockbuster, Blackberry, and Kodak were also caught off guard during their declines.
Once this transformative wave settles, the consequences will be profound. Companies that effectively leverage artificial intelligence (AI) are likely to emerge as market leaders.
In this rapidly changing environment, the market rewards proactive decision-making rather than passive waiting for certainty. Those who act on insights now stand to gain the most.
In response, I have developed a report for my Growth Investor subscribers entitled The Singularity 7: The New Exponential Wealth Machines of the AI Revolution.
This report identifies companies poised to lead in the next phase of the AI Revolution. These firms use advanced tools to grow quickly, scale efficiently, and increase revenue and earnings.
Click here to learn more and gain immediate access to the special report.
Sincerely,
Louis Navellier
Editor, Market 360
