This Magnificent Artificial Intelligence (AI) Stock Is Down 26%. Buy the Dip, Or Run for the Hills?
The stock has since declined by 26%, despite Duolingo's strong financial results, which show rapid growth at the top and bottom line.
Duolingo's valuation looks a little stretched by two popular metrics, which might explain its fading stock price.
10 stocks we like better than Duolingo ›
Duolingo (NASDAQ: DUOL) operates the world's most popular digital language education platform, and the company continues to deliver stellar financial results. Duolingo is elevating the learning experience with artificial intelligence (AI), which is also unlocking new revenue streams that could fuel its next phase of growth.
Duolingo stock set a new record high in May, but it has since declined by 26%. It's trading at a sky-high valuation, so investors might be wondering whether the company's rapid growth warrants paying a premium. With that in mind, is the dip a buying opportunity, or should investors completely avoid the stock?
Duolingo's mobile-first, gamified approach to language education is attracting hordes of eager learners. During the first quarter of 2025 (ended March 31), the platform had 130.2 million monthly active users, which was a 33% jump from the year-ago period. However, the number of users paying a monthly subscription grew at an even faster pace, thanks partly to AI.
Duolingo makes money in two ways. It sells advertising slots to businesses and then shows those ads to its free users, and it also offers a monthly subscription option for users who want access to additional features to accelerate their learning experience. The number of users paying a subscription soared by 40% to a record 10.3 million during the first quarter.
Duolingo's Max subscription plan continues to be a big driver of new paying users. It includes three AI-powered features: Roleplay, Explain My Answer, and Videocall. Roleplay uses an AI chatbot interface to help users practice their conversational skills, whereas Explain My Answer offers personalized feedback to users based on their mistakes in each lesson. Videocall, which is the newest addition to the Max plan, features a digital avatar named Lily, which helps users practice their speaking skills.
Duolingo Max was launched just two years ago in 2023, and it's the company's most expensive plan, yet it already accounts for 7% of the platform's total subscriber base. It brings Duolingo a step closer to achieving its long-term goal of delivering a digital learning experience that rivals that of a human tutor.
Duolingo delivered $230.7 million in revenue during the first quarter of 2025, which represented 38% growth from the year-ago period. It was above the high end of the company's forecast ($223.5 million), which drove management to increase its full-year guidance for 2025. Duolingo is now expected to deliver as much as $996 million in revenue, compared to $978.5 million as of the last forecast. But there is another positive story unfolding at the bottom line.
Duolingo generated $35.1 million in GAAP (generally accepted accounting principles) net income during the first quarter, which was a 30% increase year over year. However, the company's adjusted earnings before interest, tax, depreciation, and amortization (EBITDA) soared by 43% to $62.8 million. This is management's preferred measure of profitability because it excludes one-off and non-cash expenses, so it's a better indicator of how much actual money the business is generating.
A combination of Duolingo's rapid revenue growth and prudent expense management is driving the company's surging profits, and this trend might be key to further upside in its stock from here.
Based on Duolingo's trailing 12-month earnings per share (EPS), its stock is trading at a price-to-earnings (P/E) ratio of 193.1. That is an eye-popping valuation considering the S&P 500 is sitting at a P/E ratio of 24.1 as of this writing. In other words, Duolingo stock is a whopping eight times more expensive than the benchmark index.
The stock looks more attractive if we value it based on the company's future potential earnings, though. If we look ahead to 2026, the stock is trading at a forward P/E ratio of 48.8 based on Wall Street's consensus EPS estimate (provided by Yahoo! Finance) for that year. It's still expensive, but slightly more reasonable.
Even if we set Duolingo's earnings aside and value its stock based on its revenue, it still looks quite expensive. It's trading at a price-to-sales (P/S) ratio of 22.9, which is a 40% premium to its average of 16.3 dating back to when it went public in 2021.
With all of that in mind, Duolingo stock probably isn't a great buy for investors who are looking for positive returns in the next 12 months or so. However, the company will grow into its valuation over time if its revenue and earnings continue to increase at around the current pace, so the stock could be a solid buy for investors who are willing to hold onto it for the long term. A time horizon of five years (or more) will maximize the chances of earning a positive return.
Before you buy stock in Duolingo, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the for investors to buy now… and Duolingo wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you'd have $699,558!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $976,677!*
Now, it's worth noting Stock Advisor's total average return is 1,060% — a market-crushing outperformance compared to 180% for the S&P 500. Don't miss out on the latest top 10 list, available when you join .
See the 10 stocks »
*Stock Advisor returns as of July 7, 2025
Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool recommends Duolingo. The Motley Fool has a disclosure policy.
This Magnificent Artificial Intelligence (AI) Stock Is Down 26%. Buy the Dip, Or Run for the Hills? was originally published by The Motley Fool
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Yahoo
29 minutes ago
- Yahoo
What Canadian National Railway (TSX:CNR)'s Reduced Earnings Guidance Means For Shareholders
Earlier this month, Canadian National Railway faced ongoing operational challenges and reported that its expected business turnaround had not materialized, leading to reduced earnings growth guidance. This setback has sparked negative sentiment, with some industry observers drawing comparisons to competitors viewed as better positioned for growth and highlighting alternatives within the sector. With reduced earnings growth guidance in focus, we'll explore how these operational issues may shift Canadian National Railway's investment narrative. AI is about to change healthcare. These 27 stocks are working on everything from early diagnostics to drug discovery. The best part - they are all under $10b in market cap - there's still time to get in early. Canadian National Railway Investment Narrative Recap To be a shareholder in Canadian National Railway, you need confidence in the company's ability to capitalize on long-term shifts toward intermodal and bulk transport as industries focus on supply chain resilience and North American trade. However, the recent reduction in earnings growth guidance directly impacts the key short-term catalyst, an expected business turnaround, and highlights concerns around volume growth, currently the most prominent risk for the business. The news meaningfully shifts investor attention from network advantages to near-term operational execution. Among recent announcements, the second-quarter results stand out. While CN grew net income and earnings per share compared to the prior year, sales have edged lower, reflecting the ongoing volume and demand pressures underpinning the news event. This reinforces the theme that even targeted capital spending and cost discipline will take time to translate into renewed growth, particularly if market conditions stay challenging. In contrast, investors should also be aware that structural shifts in customer routing and industry competitiveness could... Read the full narrative on Canadian National Railway (it's free!) Canadian National Railway's narrative projects CA$19.6 billion revenue and CA$5.6 billion earnings by 2028. This requires 4.6% yearly revenue growth and a CA$1.0 billion earnings increase from CA$4.6 billion today. Uncover how Canadian National Railway's forecasts yield a CA$153.14 fair value, a 19% upside to its current price. Exploring Other Perspectives Simply Wall St Community members provided 12 fair value estimates for CNR ranging from CA$119.59 to CA$170.64 per share. These divergent opinions come as growth in shipping volumes remains a critical uncertainty for the company's ability to regain momentum, explore the range of forecasts and viewpoints from across the Community. Explore 12 other fair value estimates on Canadian National Railway - why the stock might be worth 7% less than the current price! Build Your Own Canadian National Railway Narrative Disagree with existing narratives? Create your own in under 3 minutes - extraordinary investment returns rarely come from following the herd. A great starting point for your Canadian National Railway research is our analysis highlighting 4 key rewards and 1 important warning sign that could impact your investment decision. Our free Canadian National Railway research report provides a comprehensive fundamental analysis summarized in a single visual - the Snowflake - making it easy to evaluate Canadian National Railway's overall financial health at a glance. Want Some Alternatives? Right now could be the best entry point. These picks are fresh from our daily scans. Don't delay: Outshine the giants: these 19 early-stage AI stocks could fund your retirement. The latest GPUs need a type of rare earth metal called Dysprosium and there are only 28 companies in the world exploring or producing it. Find the list for free. Trump's oil boom is here - pipelines are primed to profit. Discover the 22 US stocks riding the wave. This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned. Companies discussed in this article include Have feedback on this article? Concerned about the content? with us directly. Alternatively, email editorial-team@ Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
29 minutes ago
- Yahoo
Firefly Aerospace eyes Japan rocket launches for Asia market
By Kantaro Komiya TOKYO (Reuters) -Firefly Aerospace is exploring an option to launch its Alpha rocket from Japan as the U.S. rocket maker expands its satellite launch services globally, a Japanese company operating a spaceport in the country's northern Hokkaido said on Monday. The plan could make Japan the second offshore launch site - and first in Asia - for Firefly, the Texas-based rival to Elon Musk's market leader SpaceX, which had its Nasdaq debut earlier this month and is preparing for an Alpha launch in Sweden. Space Cotan, operator of the Hokkaido Spaceport located about 820 km (510 mi) northeast of Tokyo, said it and Firefly signed a preliminary agreement to study the feasibility of launching the small-lift rocket Alpha from there. Launching Alpha from Japan "would allow us to serve the larger satellite industry in Asia and add resiliency for U.S. allies with a proven orbital launch vehicle," Adam Oakes, Firefly's vice president of launch, said in a statement published on Space Cotan's website. A feasibility study would be conducted to assess the regulatory hurdles, timeframe and investments for a launch pad for Alpha in Hokkaido, said Space Cotan spokesperson Ryota Ito. The plan would require a space technology safeguards agreement (TSA) between Washington and Tokyo that would allow American rocket launches in Japan, Ito added. The governments last year kicked off the negotiations but have not reached an agreement. A U.S.-Sweden TSA signed in June cleared the path for Firefly's launches from the Arctic. Four of Firefly's six Alpha flights since 2021 have ended in failure, most recently in April. While Japan's national space agency has launched rockets for decades, private rockets are nascent and most Japanese satellite operators rely on foreign options such as SpaceX's Falcon 9 or Rocket Lab's Electron. Previously, U.S. company Virgin Orbit aimed to use Japan's southwest Oita Airport for launches but the plan was scrapped after the firm went bankrupt in 2023. Colorado-based Sierra Space has an ongoing plan to land its spaceplane on Oita beyond 2027. Taiwanese firm TiSpace last month conducted what could be the first foreign launch in Hokkaido, but the suborbital flight failed within a minute. Japan's government is targeting 30 launches of Japanese rockets a year by the early 2030s and subsidises domestic enterprises such as Space One and Toyota-backed Interstellar Technologies.
Yahoo
33 minutes ago
- Yahoo
Golar LNG's (NASDAQ:GLNG) Dividend Will Be $0.25
Golar LNG Limited (NASDAQ:GLNG) will pay a dividend of $0.25 on the 2nd of September. The dividend yield is 2.5% based on this payment, which is a little bit low compared to the other companies in the industry. AI is about to change healthcare. These 20 stocks are working on everything from early diagnostics to drug discovery. The best part - they are all under $10bn in marketcap - there is still time to get in early. Golar LNG's Projections Indicate Future Payments May Be Unsustainable Estimates Indicate Golar LNG's Could Struggle to Maintain Dividend Payments In The Future Golar LNG's Future Dividends May Potentially Be At Risk The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Even in the absence of profits, Golar LNG is paying a dividend. It is also not generating any free cash flow, we definitely have concerns when it comes to the sustainability of the dividend. Over the next year, EPS is forecast to grow rapidly. Assuming the dividend continues along recent trends, we could see the payout ratio reach 613%, which is on the unsustainable side. View our latest analysis for Golar LNG Dividend Volatility The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2015, the annual payment back then was $1.80, compared to the most recent full-year payment of $1.00. This works out to be a decline of approximately 5.7% per year over that time. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems. The Company Could Face Some Challenges Growing The Dividend Given that dividend payments have been shrinking like a glacier in a warming world, we need to check if there are some bright spots on the horizon. It's encouraging to see that Golar LNG has been growing its earnings per share at 12% a year over the past five years. Even though the company isn't making a profit, strong earnings growth could turn that around in the near future. Assuming the company can post positive net income numbers soon, it could has the potential to be a decent dividend payer. The Dividend Could Prove To Be Unreliable Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. In general, the distributions are a little bit higher than we would like, but we can't ignore the fact the quickly growing earnings gives this stock great potential in the future. We would be a touch cautious of relying on this stock primarily for the dividend income. Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 1 warning sign for Golar LNG that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers. Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
