2 Companies Bringing Artificial Intelligence to the Classroom

To celebrate the 25th anniversary of The Motley Fool, we discuss what the next 25 years might bring in consumer goods investing.

In the following segment, we dive into the education industry and the artificial intelligence tools being used by New Oriental Education (NYSE: EDU) and Chegg (NYSE: CHGG) to boost revenue.

A full transcript follows the video.

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This video was recorded on June 26, 2018.

Vincent Shen: On the data side, you put New Oriental Education on our radar. This was a new name for my watchlist. The company trades under ticker EDU, and it offers test preparation and tutoring resources to students in China. Revenue was up to $2.2 billion for the trailing 12-month period. What's the picture for this one?

Asit Sharma: New Oriental is a company that we've actually mentioned in passing on the show. We were going to include it on a show in which we talked about some other educational companies, 2U and Chegg -- this was about a year ago. -- we just didn't have time.

It's an interesting company. This is China's largest private provider of educational services. Looking at that huge population in China, the middle class -- you hear this analogy all the time, it's as big as the United States and growing -- there is a stampede. Because of that population being so competitive, the thing about being a student, the odds of you placing in a national exam against thousands of other students, those probabilities are a lot lower than countries with smaller populations. There's a massive need for companies which only tutor or provide secondary services to students. That's what New Oriental specializes in.

I really like their forward use of technology in that they have applied artificial intelligence to tutoring. One example is an app that they have called RealSkill. RealSkill helps Chinese students learn English. Such a valuable skill on the international stage. If you're going on to further education, you're going to get a PhD, or perhaps even be in trade, any type of global commerce that you might participate in in the Chinese workforce, you'll need to speak English. That's a sought-after skill on the Chinese mainland. This app, RealSkill, helps Chinese students learn English by looking at essays that the students write. You write an essay as a student, you take a photograph and upload it to the server. The server instantly grades that based on artificial intelligence and gives you feedback. It's said to be 93% accurate -- in other words, 93% accurate in terms of how an accomplished English teacher might grade. I'm not so sure of that as yet, but I admire the technology.

That brings me to one more related company. We've talked about Chegg on this show before. They are a company that started as a rental textbook company for students, and now has moved into the tutoring business. Chegg just acquired a German company called Cogeon in October of last year, for about $15 million. Cogeon, similar to New Oriental, has an app called MATH 42. If you're a high-school investor listening to us, maybe you want to take a look at this app before school starts up in the fall again. It's pretty interesting.

Similar to this other app, RealSkill, MATH 42 lets you solve problems, and then it will take you step-by-step through what you did wrong. It also uses artificial intelligence to do assessment and adaptive learning. Once the program gets a sense of what your weaknesses are in a particular math discipline, it can highlight what you need to work on and cut down your workload, make you more efficient, and improve your score that way.

So, I thought these are two companies which have done, actually, very well in the stock market, but also have interesting, forward-looking products which will help them increase revenue in years to come.

Shen: Awesome. I think the AI essay grading, especially, for New Oriental is pretty incredible. I think back to my days doing Scantron tests, that's about as far as these systems could go, in terms of grading, just figuring out which little black dot you filled in with a pencil. That was as good as it got. Now, having technology to read, and not only that but interpret and grade something as sophisticated as a written essay, is really incredible.

Asit Sharma has no position in any of the stocks mentioned. Vincent Shen has no position in any of the stocks mentioned. The Motley Fool recommends 2U and New Oriental Education & Technology Group. The Motley Fool has a disclosure policy.