Duolingo Shares Jump 32% on Strong AI-Driven Growth and Upgraded Forecast

Duolingo shares surged about 32% on Thursday after the language-learning platform raised its annual forecast, boosting investor confidence in its ability to accelerate user growth through AI-powered features, social engagement tools, and improved monetization strategies.

The company has been experimenting with app features and subscription models to enhance retention and attract new users. Duolingo runs targeted experiments to decide which subscription options are shown to which users and when, aiming to maximize long-term value rather than pushing any single plan.

In the second quarter, average revenue per user rose 6%, largely due to more users switching to the higher-priced Max tier, which includes AI-powered video calls for conversational practice, and the $12.99-per-month Super plan. Analysts at Raymond James noted potential upside in monetization, pricing, paid conversion rates, and margins, despite a cautious stance on near-term user growth.

Gross margin fell 100 basis points in the quarter, a smaller decline than the 300 basis points Duolingo had anticipated, thanks to lower AI costs and stronger ad performance. “AI costs that power Max were lower than expected, as the cost of calling AI tools has dropped significantly,” CFO Matt Skarupa told Reuters.

The company posted adjusted earnings per share of 91 cents, beating analyst expectations of 58 cents, prompting an upward revision in earnings forecasts. If current levels hold, Duolingo’s market valuation could increase by roughly $5 billion from its prior $15.62 billion.

Even after the rally, Duolingo trades at a forward price-to-earnings multiple of 85.21 — higher than peers such as Uber (26.54) and DoorDash (79.38).