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Artificial Intelligence in Education: AI + HI = ROI

This edition of our Thematic Insights focuses on generative artificial intelligence (AI) – one of hottest topics in education this year. We believe that AI technology is a revolutionary tool that can help improve efficiency, cut costs, and boost students’ engagement as well as teachers’ job satisfaction. However, like any innovation, it also comes with its risks.

August 7, 2023

Dr. Kirill Pyshkin

Senior Portfolio Manager, Credit Suisse Asset Management Thematic Equities

In this Thematic Insight, we investigate the impact of artificial intelligence (AI) on Education, concluding that it is likely, along with human interaction (HI), to have an overall positive impact on educational outcomes and return on investments (ROI) in the sector. Nevertheless, there could be negative consequences for certain business models as well as job losses, especially among lower-skilled professionals. 

"Generative text is something we all need to adapt to... We adapted to calculators and changed what we tested for in math class, I imagine. This is a more extreme version of that, no doubt, but also the benefits of it are more extreme as well." Sam Altman, CEO, and co-Founder of OpenAI¹

An earthquake with an aftershock 

The launch of a chatbot, ChatGPT, by OpenAI in November 2022, introducing its large language model (LLM) to consumers, had a seismic effect on many sectors, including Education. In short, it became the fastest growing consumer application in history, reaching 100 million subscribers within just two months after launch.2

In April, we attended ASU-GSV,3 one of the largest education conferences, with over 7,000 attendees,4 many of whom were teachers worried about potential job losses due to the threat AI could pose to their profession. Most of the sessions discussed the impact of ChatGPT, showing us that AI will remain a dominant topic for the sector for a while, overtaking fundamental considerations for many stocks.

A real aftershock for the sector came in May 2023 when Chegg, a prominent edtech company, admitted that ChatGPT is having a negative impact on its customer growth.5 The subsequent stock reaction over the following week was severe, both in the education and the career mobility segments. Most notably, Chegg’s share price fell ~42% and 2Uֹ’s price dropped ~26%in the education technology space, while Fiverr fell ~26% and Upwork slumped ~16% in the career mobility space.6

Cheating or an efficiency tool? 

To demonstrate the “benefits” of cheating, we asked ChatGPT to write the section below. After several attempts, and with our guidance on the conclusions, title and tone of the article, we obtained the following outcome:

AI + HI = ROI: Maximizing Efficiency and Enhancing Education through AI Integration (by ChatGPT)

In our view, the article feels a little too mechanical and the general tone is too positive. However, by outsourcing the time-consuming writing to ChatGPT, we saved time and, under our guidance, we received a decent outcome supporting the main points that we were trying to make:

  • Empowering teachers by freeing up their time from administrative tasks, allowing them instead to focus on students, and therefore improve educational outcomes.
  • Enriching the learning experience for students, which again improves outcomes.
  • Improving investor returns through efficiency.

From the students’ perspective, they would have learned how to use a very useful tool that they will most likely have to leverage on in their future careers. And they also know that they are still required to understand and learn the material to pass exams.

Co-pilot for teachers freeing up their time to focus on human interaction with students

The most obvious advantage for teachers is the ability to outsource many administrative tasks to ChatGPT, such as developing lessons, generating exercises or drafting emails, allowing them instead an uninterrupted focus on students. To demonstrate this functionality, we asked ChatGPT to plan a high-school history lesson about the French Revolution for us.

If we analyze the content of the lesson plan, it is of good quality, with guidance for the teacher on how to improve the educational outcomes. However, notice the discrepancy whereby the 60 minutes estimated for the duration of the whole lesson does not match the sum of the individual parts. In fact, it is worth critically reviewing the outcome from ChatGPT as it is known for making simple arithmetic errors, so its usefulness in math and exact sciences is limited.

On average, teachers work ten hours and 40 minutes a day and approximately 30% of their workday is dedicated to administrative tasks and planning lessons.7  Rather, this time could be spent addressing students’ individual weaknesses, finding more engaging supporting materials, or improving teachers’ morale as only 20% of teachers in American public schools say that they are very satisfied with their job.8 All this would lead to better educational outcomes.

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Job losses or efficiency gains?   

As teachers’ time could be saved from some administrative tasks, there could be a temptation to increase their workload, for example, by assigning more classes to the same teacher. That could relieve some pressure on the industry to find new teachers, which is a major issue, as many teachers retired during the COVID-19 pandemic on health and stress grounds.9 For investors in the education sector, that would mean higher returns as costs savings and efficiency gains would push margins higher. This effect would be most noticeable for companies having high labor costs pushing margins down. 

With a shortage of 69 million teachers around the world, we think that schools are unlikely to get rid of qualified teachers, and therefore the fears of large layoffs in the education sector are unwarranted.10 Rather, we believe that outsourcing administrative tasks to an AI-powered platform would make the profession more rewarding, as teachers would focus more on human interaction and on finding the “individual key” to each student. In many cases, this was the exact reason why they would have chosen the profession in the first place, as none of them would have become teachers to spend their weekends marking papers or filling in administrative forms. However, we can see some pressure on entry-level teaching assistants, who used to perform those mundane tasks, to either upgrade their skillset and become qualified teachers or re-train for another industry.

The share prices for Fiverr and Upwork, who supply freelance workers, many in the IT field, also fell on Chegg’s admission. Here, an argument could be made that the world would not require as many coders if elements of a code can be written by AI. On the flip side, we could make the argument that now every company in the world is looking at how to incorporate AI into their products or services, and so there will be an even greater need for IT professionals who understand and know how to use AI. Coders will be much more productive if they use AI to create standard pieces of code and could instead focus on designing complex structures and inventing new applications. As a result, their jobs may well become more interesting and fulfilling. 

AI + HI = ROI

From discussions with the management of our portfolio companies, we know that this is already happening. For example, a US tutoring company highlighted several benefits of AI:

  • Better student retention from having a lesson plan for every lesson. Before ChatGPT emerged, it was a struggle to get tutors to prepare lesson plans, but students do appreciate it.
  • Better tutor retention as preparation for lessons takes less time.
  • Access to additional free content to cover 3,000 subjects that they teach.
  • Better sales productivity with the use of AI for training and replacing sales scoring previously performed by a call centre with AI.
  • Cost savings from the elimination of that call centre and some coding jobs as up to 30% of the code is now produced by AI.

Overall, through better retention, costs savings and productivity gains, the company was able to improve the lifetime value of its services and reach earnings before interest, taxes, depreciation, and amortization (EBITDA) profitability ahead of the plan. 

Conclusion

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1Gizmodo Article; published on 20.01.2023, link; retrieved 24.05.2023.
2https://www.reuters.com/technology/chatgpt-sets-record-fastest-growing-user-base-analyst-note-2023-02-01/, retrieved 31.05.2023. 
3Annual summit initiated in 2010 through a collaboration between Arizona State University (ASU) and Global Silicon Valley (GSV), with the aim of connecting people focused on transforming society/business in the topics of learning and work.
4ASU-GSV summit sold out, retrieved 31.05.2023.
5“In the first part of the year, we saw no noticeable impact from ChatGPT on our new account growth and we were meeting expectations on new sign-ups. However, since March we saw a significant spike in student interest in ChatGPT. We now believe it’s having an impact on our new customer growth rate.” Chegg CEO on Chegg’s 1q 2023 earnings, retrieved 31.05.2023.
6Bloomberg, performances from 01.05.2023 to 05.05.2023 in USD, retrieved 31.05.2023.
7ps_fullreport.pdf (scholastic.com), retrieved 02.06.2023.
8Is Teacher Morale On the Rise?, 2nd Annual Merrimack College Teacher Survey, retrieved 02.06.2023
9For example, see DOE US Department of Education, retrieved 31.05.2023
10World Teachers’ Day: UNESCO sounds the alarm on the global teacher shortage crisis | UNESCO, retrieved 02.06.2023
11With the “pure-play” concept, we mean companies which have at least 50% in revenues directly attributable to the corresponding theme.

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