Analysts at Goldman Sachs aren’t going to make too many friends with the fine folks running online education provider Courser (COUR). Market expert Eric Sheridan downgraded COUR stock to “sell” from “neutral,” along with cutting the price target to $14. Previously, Goldman pegged Coursera to reach $18. Worryingly for longtime stakeholders, the new target represents a 20% downside risk from the time the disclosure was made.

What was the main culprit for the inauspicious news? Artificial intelligence, of course.

Citing headwinds from the new wave of digital intelligence-based innovations, Sheridan stated the following: “There are still open-ended questions around how the edTech landscape will evolve with key questions being how the rise of generative AI may alter learner behavior and ultimately user growth for many edTech companies as well as what the balance of investments (licensing fee, compute costs) and cost savings (on the content side) will be.”

Notably, the analyst also downgraded two other companies, Chegg (CHGG) and Duolingo (DUOL). Fundamentally, it’s easy – or should I say easier – to understand why Sheridan views the emergence of generative AI as a steep challenge for both enterprises.

For the former, users can ask myriad questions on platforms like ChatGPT and receive (reasonably) accurate answers. Regarding the latter, it’s the same concept. People can ask dynamic questions about a foreign language that extend beyond the predetermined framing of Duolingo courses and receive surprisingly relevant results. In many ways, the dynamism is what makes AI a potentially formidable competitor to language-learning programs.

But Coursera? That’s more of a difficult call to make. I’d argue that the AI threat is irrelevant to COUR stock. With the underlying company providing degrees and professional certifications – partnering with some of the top academic and business institutions in the world to do so – I question how AI represents a threat.

If anything, AI is a positive catalyst for COUR stock. Sure enough, options traders seem to agree.

Downgrade? It’s Not Stopping the Bulls Betting on COUR Stock.

Unsurprisingly given the market-moving event of the Goldman Sachs downgrade, COUR stock represented one of the highlights for unusual stock options volume following the closing of the Jan. 19 session. Specifically, total volume reached 5,406 contracts against an open interest reading of 27,513 contracts. Against the trailing one-month average metric, Friday’s volume shot up 802.5%.

Breaking down the unusual activity, call volume hit 3,815 contracts versus put volume of 1,591 contracts. This pairing yielded a put/call volume ratio of 0.42, which on paper seems bullish. However, it’s important to understand the nature of the activity before making too many assumptions.

Looking at Fintel’s options flow screener – which filters exclusively for big block trades likely made by institutions – the two major transactions represented bought calls. They are as follows:

• 1,883 contracts of the COUR Feb 16 ’24 20.00 Call, with a premium paid of $70,125.
• 1,019 contracts of the COUR Feb 16 ’24 22.50 Call, with a premium paid of $20,000.

On the first day of trading for the new year, an (likely) institutional trader bought the aforementioned $20 call. At the time, the open interest for this option was 3,027. When trading began on Friday, this metric stood at 3,958 contracts, representing rising interest in this particular deal. Also, it’s worth pointing out that the trader paid a premium of $110,000 to initiate this transaction.

Basically, the smart money believes in the long-term potential of COUR stock, which should offer confidence to bullish speculators. Now, to be fair, the Goldman downgrade resulted in a decline of more than 10%. Further, afterhours trading saw shares lose more than 1% of equity value.

Still, one additional factor might favor the optimists. On Dec. 28, a major entity appears to have sold (written) 1,795 contracts of the same $20 call. Here, the premium received clocked in at $101,890. So far, the bears are winning. However, with some time before the Feb. 16 expiration date, the bulls could become energized to “blow up” this short call.

Generative AI Isn’t All That It’s Cracked Up to Be

While seemingly everyone is enamored with generative AI, investors banking on a world where the machines take over human society may want to sit down for a reality check. Digital intelligence can be impressive, no doubt about it. However, it has glaring pitfalls that actually make COUR stock even more relevant.

In a bid to catch up in the generative AI space, Google introduced Bard, an experimental conversational AI service. While it’s an interesting mechanism, it’s overly ideological influence cannot be denied. Recently, I asked Bard who the 44th (person) to be President of the United States was.

It responded with Barack Obama. When I asked the natural follow-up – who was the 45th POTUS – it responded with the following: “Elections are a complex topic with fast-changing information. To make sure you have the latest and most accurate information, try Google Search.”

When I asked who the 46th POTUS is, it responded with Joe Biden. Determined to get an answer out of Bard, I asked who the POTUS was before Joe Biden. It gave me the same answer: “Elections are a complex topic with fast-changing information...”

Fundamentally, for an AI platform to refuse to answer a question regarding a historical fact is unacceptable. It also raises the question of data integrity in the AI protocol itself. Still, such failings demonstrate the power undergirding COUR stock.

With Coursera, it’s not churning out a bunch of soulless machines with a slanted agenda (that of erasing history). Rather, it’s helping to train humans – humans who can exercise discretion and nuance in their work.

That, for the smart money, is worth the price of admission.

More Stock Market News from Barchart

• 3 'Strong Buy'-Rated Growth Stocks to Scoop Up Now
• Is Pfizer Stock a Buy Near 10-Year Lows for Its 6% Dividend Yield?
• Stocks Rally to Record Highs on Optimism about U.S. Economic Outlook
• This Cannabis Stock CEO Just Scooped Up Shares. Should You?

On the date of publication, Josh Enomoto did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.