07-08-2025
Duolingo stock is surging after announcing it's making a lot more money from AI during earnings
Duolingo may be one of the Q2 earnings season's unexpected winners.
The language learning platform reported its Q2 results on Wednesday, revealing significant revenue growth and record profitability, sending Duolingo stock soaring.
Subscription revenue increased 46% and overall revenue rose by 41%. Duolingo also reported record net income and raised its full-year guidance, signaling high confidence in its future prospects.
DUOL stock rose 30% in the first few hours of trading on Thursday, following the company's strong earnings report. The company also seems to be benefiting from its continued artificial intelligence integration.
More specifically, the company's leaders have made clear that they have been able to integrate AI tools and features into more of their offerings at a lower cost than anticipated. This includes the conversational AI feature available in Max, Duolingo's top-tier subscription service.
"We expanded gross margin by 130 basis points to 72.4% from Q1 to Q2, due to lower-than-expected AI costs and strength in our ads business," said CEO Luis von Ahn in his letter to shareholders.
Von Ahn added that gross margin did fall 100 basis points year-over-year due to the higher AI costs that came with the Max expansion. It was less than the 300 basis points they had initially predicted.
"We now expect FY 2025 gross margin to decline about 100 basis points year over year, which is an improvement from the guidance we provided last quarter," he noted, attributing this to lower AI costs and ad business strength.
This comes just a few months after Duolingo came under fire when von Ahn announced plans to shift toward an AI-first business model, comments that he walked back shortly thereafter.
As Duolingo stock has surged, it has caught the attention of retail traders, who seem optimistic about its growth prospects. Data from Stocktwits shows that retail sentiment towards it is "highly bullish" and that message volume is extremely high.
Meanwhile, Duolingo stock is gaining traction on popular retail investor forums such as r/WallStreetbets. According to ApeWisdom, mentions of DUOL have surged 1,200% during the past 24 hours.
