Key Takeaways
- Duolingo’s stock has rebounded from a 52‑week low of $90.03 to about $146.84, but analysts still see modest downside (average price target $127.07 ≈ 13% loss).
- The company is prioritizing user‑growth over immediate monetization, aiming for 100 million daily active users by 2028, which could create a durable moat against competitors.
- AI integration—especially the low‑cost Video Call feature—enhances engagement and lowers costs, positioning Duolingo to leverage emerging technology without being displaced by it.
- Valuation metrics show the stock is cheap: a price‑to‑sales ratio of 6.3 (well below its 15.2‑year average) and a P/E of 17.3 versus 26.1 for the S&P 500 and 34.1 for the Nasdaq‑100.
- Although earnings may dip to $7.68 per share in 2027 as growth spending rises, the forward P/E of 19.1 still leaves the shares attractive relative to the broader market.
- The author intends to hold the stock through at least 2028, betting that the user‑base expansion will ultimately drive higher revenue and a substantially higher share price.
A Bigger User Base Will Be a Net Positive in the Long Run
Duolingo’s core strength lies in its “highly interactive mobile app that places fun language lessons at the fingertips of anybody with a smartphone.” As of Q2, the platform counted 58.7 million daily active users, a 23 % year‑over‑year increase. Remarkably, the company achieves this growth with minimal marketing spend, relying instead on a “quirky content” strategy that generates roughly 1 billion impressions per quarter.
Monetization today comes mainly from the 12.7 million paying subscribers who unlock premium features, while the free tier is supported by ads. Management’s new approach—offering more premium features to free users—could temporarily blunt the incentive to subscribe, but the trade‑off is expected to entice more language learners to try the platform.
If the plan succeeds, Duolingo hopes to push its daily active user count to 100 million by 2028. A larger base not only raises barriers to entry for potential rivals but also creates a vast pool of users that the company can later convert into paying subscribers when it shifts focus back to monetization. The author views any near‑term revenue pressure as “temporary,” anticipating a stronger financial position once the user base reaches that scale.
Duolingo Is Leaning Into Artificial Intelligence
Concerns that AI‑driven chatbots and translation tools might undermine Duolingo’s business are overstated, according to the article, because those tools “don’t necessarily educate their users, so they aren’t a substitute for Duolingo, which teaches languages from the ground up.”
Instead, Duolingo is harnessing AI to improve its own product. The Video Call feature—originally a perk for Duolingo Max subscribers—now uses an open‑source AI model that slashes the cost per call from $0.30 to under $0.01. This cost reduction enables the company to roll Video Call out to the cheaper Super Duolingo tier and even integrate speaking exercises into free lessons.
Management reports that “the number of spoken words per user who engages with Video Call continues to soar,” suggesting that AI‑enhanced speaking practice boosts engagement and learning outcomes. By embedding AI‑driven features into the core experience, Duolingo not only defends against disruptive technologies but also makes its platform stickier and more effective.
Duolingo Stock Is Cheap Now
From a valuation standpoint, Duolingo appears attractively priced. Over the last four quarters the company generated $1.14 billion in revenue, giving it a price‑to‑sales (P/S) ratio of 6.3. That figure is significantly below its average P/S of 15.2 since its 2021 IPO; even a doubling of the share price would leave the P/S well under historical norms.
On the earnings side, trailing twelve‑month earnings per share sit at $8.46, and with a share price of $146.84 the price‑to‑earnings (P/E) ratio is 17.3. This is a steep discount to the broader market: the S&P 500 trades at a P/E of 26.1 and the Nasdaq‑100 at 34.1.
Analysts forecast a temporary dip in earnings to $7.68 per share in 2027 as the company invests in user growth, which pushes the forward P/E to 19.1—still below the market averages. The author notes that, while the average Wall Street price target of $127.07 implies roughly 13 % downside, the current valuation discount makes the stock a compelling hold for a long‑term investor.
Why the Author Plans to Stick Around Until 2028
The author’s bullish stance rests on the belief that Duolingo’s user‑growth strategy will ultimately outweigh short‑term financial headwinds. By amassing a massive, engaged audience, the company creates a network effect that makes it difficult for new entrants to gain traction. When the time comes to refocus on monetization, Duolingo will have a far larger pool of free users to convert into paying subscribers, likely accelerating revenue growth beyond today’s levels.
Moreover, the AI‑powered enhancements—especially the low‑cost Video Call feature—improve learning outcomes and increase stickiness, further strengthening the moat. The combination of a cheap valuation, a clear path to a 100 million‑user base, and innovative AI integration leads the author to conclude that holding the stock through at least 2028 offers the best chance to reap the potential rewards should management’s plan pay off.
Closing Thought
While Wall Street’s consensus remains cautious, the underlying fundamentals—rapid user adoption, cost‑effective AI upgrades, and a valuation that sits well below both historical averages and market peers—suggest that Duolingo could be poised for a meaningful re‑rating if its growth‑first strategy executes as planned. For investors willing to tolerate a few years of modest earnings volatility, the upside potential appears substantial.
https://www.fool.com/investing/2026/08/26/this-ai-stock-fall-13-wall-street-i-refuse-to-sell/