MW The AI fears that hurt this stock are overblown, analyst says

By James Rogers

KeyBanc Capital Markets has turned bullish on Duolingo's stock and sees more than 30% upside

Duolingo's stock is rising Monday after KeyBanc Capital Markets upgraded the digital-education app.

Duolingo Inc. will be helped rather than hurt by artificial intelligence, according to KeyBanc Capital Markets, which highlighted the digital-education app's recent product changes and the success of its edgy, viral marketing efforts.

Against this backdrop, KeyBanc upgraded Duolingo's stock to overweight from sector weight Monday. Analyst Justin Patterson set a $460 target for the shares (DUOL), which implies about 31% upside from current levels.

Concerns about AI-related competitive pressures, such as the advent of ChatGPT parent OpenAI's new GPT-5 language model, have weighed on Duolingo's stock.

The shares rallied 7.1% in morning trading but have still lost 35% since closing at a record $540.68 on May 14.

But KeyBanc's Patterson described the AI backlash as "a bump in the road" and thinks fears that AI will contract Duolingo's total addressable market, both in the U.S. and abroad, are overblown.

"There are multiple drivers ahead," he added. In particular, the analyst pointed to the "Energy" system that Duolingo recently implemented on its free offering. This replaces the "Hearts" system, which penalized users for mistakes, similar to the "lives" used in videogames.

The "Energy" system instead rewards users for correct answers and also lets them earn an energy boost for getting multiple answers in a row right. This is driving engagement on the platform.

"The initial iOS rollout has shown improvements to [daily active users], median time spent learning well, and subscriber conversion, and management noted it is rare for a feature to move one of these metrics, let alone all three," Patterson wrote.

The analyst also highlighted Duolingo's marketing efforts.

"Viral marketing is on its way back - per Duolingo, social sentiment has stabilized," he said. "The Company is now turning the dial on making more edgy content, which we believe could increase the probability of going viral and attracting users."

Earlier this year, Duolingo garnered plenty of attention for a viral marketing campaign that centered on the "death" of its cartoon green owl mascot, Duo. The iconic owl subsequently made a comeback.

Patterson also noted that Duolingo's management is "hyper-focused" on daily active users. "In our time covering Duolingo, two things are clear: leadership prioritizes engagement and manages for the long term," he said. "Now that Duolingo has experienced an AI backlash, our sense is the team is hyper-focused on execution and winning back users."

Duolingo reported strong second-quarter results earlier this month. The company's revenue grew 41% year over year and daily active users rose 40% compared with the same period last year. The Pittsburgh-based company also raised its full-year guidance.

Duolingo is also expanding beyond its roots as a language educator. Earlier this year, the company launched a chess course, and it has offered music and math courses since 2023 and 2022, respectively.

"Duolingo's new Chess course has grown faster than any of its other subjects," Patterson said, noting that it had reached 1 million daily active users as of the second quarter of 2025. "We are encouraged by Duolingo's ability to stand up new courses and use AI to tailor content to each learner."

Of 25 analysts surveyed by FactSet who cover Duolingo, 16 have an overweight or buy rating, eight have a neutral rating and one is bearish.

-James Rogers

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August 18, 2025 10:15 ET (14:15 GMT)

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