Duolingo's (DUOL) Q2 daily active users were "well-ahead" of expectations, as US weakness appears temporary and structural tailwinds remain strong, Morgan Stanley said in a Thursday note.

The language learning platform reported late Wednesday Q2 DAU of 47.7 million users, up 40% year-over-year, which beat buy-side expectations for high 30% growth, the analysts said.

The lack of Q3 DAU guidance and a sequential drop in Q2 monthly active users might drive bearish fears, but the brokerage said it modelled 37% DAU growth in Q3 from a year earlier and expects the DAU base to double over five years, according to the note.

Despite unexpected US user pushback in Q2, the company continues to grow at an "impressive" rate on expanded subscriber penetration and faster-than-expected gross margin improvement, the analysts said.

The brokerage increased its 2025 and 2026 bookings expectations by 2% each, but lowered its MAU estimates, citing Q2 softness. Analysts also raised their earnings before interest, taxes, depreciation, and amortization estimates for 2025 and 2026 by 5% and 3%, respectively, as a higher revenue base offsets rising operating expenses.

The brokerage reiterated an overweight rating on the stock and increased its price target to $500 per share from $480.

Shares were up over 27% in recent trading.

Price: 435.09, Change: +91.48, Percent Change: +26.62