Duolingo Stock (DUOL) Investors Braced for AI Impact

It hasn’t been an easy few months for Duolingo (DUOL) shareholders. Since June, the stock has plummeted, and sentiment has soured to the point where the stock is now trading below $200 per share. As a brief reminder, in May this year, DUOL stock was changing hands for $520.

Bears argue that AI has already become an existential threat: Why bother learning a new language when translation apps—and even Meta glasses—can translate everything on the fly? That narrative has weighed heavily on both demand expectations and investor optimism. To many market participants, Duolingo appears to be drifting toward irrelevance.

Then came Q3’s “softer” guidance published last week, which only added fuel to the fire. Despite the firm reporting superb earnings, the market discounted future performance and sold off. However, there is reason to believe that the market has overcooked the pessimism on DUOL. But I think both major bearish arguments fundamentally misunderstand what Duolingo is.

Duolingo’s Q3 momentum remains exceptional, with DAUs up 36% year over year and full-year guidance calling for nearly $1.2 billion in bookings at 33% growth and a 29% adjusted EBITDA margin, all while the company doubles down on AI to deliver human-level teaching at massive scale. With that kind of execution and ambition, I’m happily buying the dip.

Translation Apps Don’t Equal Learning a Language

After engaging with countless Duolingo bears, I’ve found one misconception at the center of their thesis: the idea that Apple’s Live Translation on AirPods or Google’s Pixel Buds poses a competitive threat. These devices can translate conversations on the fly, with firms like Apple (AAPL) integrating translation features directly into its software, as well as providing easy-to-use, dedicated translation apps capable of audio, video, and text input. Both Apple and Google (GOOGL) have offered such tech since the advent of smartphones. It’s cool tech and it’s useful, but it has little to do with learning a language.

Duolingo isn’t selling “be understood for ten seconds.” It’s selling identity, opportunity, and mastery. People learn languages for love, career advancement, visa requirements, travel, promotions, and personal growth. Meanwhile, instant smartphone translators help tourists order tapas.

However, nurses retraining in Germany or PMs preparing for a role in Brazil need to develop their grammar, recall, fluency, and confidence. Translation tools are complements, not substitutes. If you’ve ever used a calculator and still taken math, you already understand the distinction.

AI Can Serve as a Tailwind, Not a Torpedo

Here’s the real inversion: AI isn’t a threat to Duolingo—it’s rocket fuel for the business. Duolingo has been building around AI for years. Its Birdbrain model adjusts difficulty in real time. Its premium “Duolingo Max” tier incorporates GPT-4-powered “Roleplay” and “Explain My Answer” features. This year, Duolingo even added live AI-powered video call practice. These aren’t experiments; management says they’re profitable and driving new subscribers.

What the bearish narrative overlooks is that AI enhances teaching by making it accessible, cheaper, and more scalable. Duolingo already has global distribution and, just as importantly, has cracked the motivation side of learning—habit loops, streaks, spaced repetition, and bite-sized lessons to name just a few.

That same motivational engine lets Duolingo expand into music, math, and even chess. What it has built isn’t a “language app,” but a learning infrastructure. AI accelerates lesson creation, feedback, and the development of adaptive pathways. That’s why I think Duolingo is on track to become an “education for everything” platform.

The Market Overlooks Duolingo’s Strength

The current sentiment is so bearish that it completely obscures Duolingo’s actual performance. In Q3, revenue increased 41% year-over-year to $271.7 million. DAUs surged 36% to ~50.5 million. Paid subscribers hit a record 11.5 million. Those are massive numbers at this scale.

The stock was punished because Q4 guidance—especially around EBITDA and bookings—came in below sky-high expectations. However, management explicitly prioritized long-term growth and user experience over short-term financial gain. That’s a trade-off long-term holders should actually welcome.

Notably, the margin jump included a non-cash one-time item. Meanwhile, the balance sheet is in a healthy condition. Duolingo now has roughly $1.1 billion in cash and no long-term debt. Free cash flow for the first nine months of 2025 reached $266.7 million, helped by the company’s asset-light, high-margin model.

At today’s ~$9 billion market cap, the stock looks surprisingly inexpensive relative to where free cash flow is headed. Street estimates project free cash flow of ~$495 million for FY2026 and ~$630 million for FY2027. I think these forecasts lean conservative, given Duolingo’s flywheel and AI tailwinds. Even on those numbers, you’re looking at a low-to mid-teens EV/FCF for a company still compounding users at a rate of over 30%.

On a relative valuation basis, DUOL trades at a P/E of 23x versus the sector’s 19x, and its forward P/E of 22x compares to the sector’s 18x. The numbers are closely aligned, suggesting DUOL is priced reasonably and sits near the sector median.

Is Duolingo Stock a Buy, Sell, or Hold?

Despite the stock’s recent performance, Wall Street remains far from bearish. Duolingo carries a Moderate Buy consensus, with eight Buy ratings, 10 Holds, and only one Sell in the past three months. The average price target of $282 implies more than 50% upside from current levels over the next 12 months.

See more DUOL analyst ratings

Final Thoughts

Duolingo’s drawn-out selloff seems to ignore what actually drives its success. AI isn’t a threat; it’s an accelerant that amplifies engagement, personalization, and scale. With strong revenue growth, a fortress balance sheet, and expanding subject categories, Duolingo has a real shot at becoming a global learning platform. Today’s fear looks like tomorrow’s upside. If the market keeps offering these prices, I’ll keep buying the dip.