Duolingo Stock Targets Up to $600 as Analysts Back AI-Driven Growth Story

Two years after the AI hype began, in early 2024, language-learning company Duolingo (NASDAQ:DUOL) cut 10% of contract workers as it shifted to AI-powered app content. In late April, Duolingo CEO Luis von Ahn doubled down, informing the workforce that all contract workers will be replaced by AI.

Furthermore, he said the company will hire new employees only if existing teams prove unable to automate the workload. At present, Duolingo has 800 employees, each contributing $23 million in value to a total market cap of $18.43 billion.

On Thursday, Duolingo released its Q2 2025 earnings report ending June, resulting in a 14% stock price increase for the week. Should investors take this opportunity to put DUOL on a close watchlist?

Duolingo’s Scaling Capacity

Despite lingering confabulation problems, AI is at its best when dealing with language manipulation, as one would expect from large language models (LLMs). Simply put, AI predicts the next likely word in a sentence based on any given concept.

This then forms a coherent output, typically proportional to the precision of the user’s prompt. At a glance, this may seem bearish for Duolingo. After all, why wouldn’t users just interact directly with major LLMs like ChatGPT, Grok, or Gemini to learn languages?

Fortunately for Duolingo, that would require much greater user engagement and time spent on crafting their own lessons. Instead, the superior option is Duolingo’s existing approach – having its own specialized Birdbrain LLM, honed to craft lessons and get better at it with each new instance.

Birdbrain serves Duolingo’s linguistic specialists as a great multiplier force, with humans selecting parameters such as difficulty level and grammar focus. Duolingo CEO Luis von Ahn made it clear that occasional hiccups can happen but that he would rather “take occasional small hits on quality than move slowly and miss the moment.”

Judging by Thursday’s Q2 earnings report, this approach is fruitful.

Duolingo’s Impressive Quarterly Earnings

Much like recently covered Spotify (NYSE:SPOT), Duolingo runs a freemium business model, with a free basic version attractive enough to entice users into becoming paid subscribers. The company has successfully leveraged this model, having increased its paid subscribers by 37% to 10.9 million from 8 million in the year-ago quarter.

Likewise, Duolingo’s monthly active users (MAUs) increased 24% year-over-year, from 103.6 million to 128.3 million. For the first half of the year, this resulted in a net income of $79.9 million, up 55% from H1 2024. On a single quarterly basis, the company increased its net income by 84% year-over-year.

More importantly, to expand AI operations and cut employee overhead, Duolingo now has a free cash flow position of $86.3 million, up 60% from the year-ago quarter. In particular, the company’s Chess course launched in early June has been wildly successful, currently available on iOS but soon to deploy on Android.

In addition to greater engagement via Chess and similar apps like Math and Music, the Video Call feature is also gaining traction. As a part of the highest Max subscription tier, Video Call is perhaps the most useful language learning tool, allowing for spontaneous video conversations in a low-pressure environment.

Before AI, it was common for people to publish ads for this exact purpose of finding speakers for practice. Duolingo’s own in-house research shows that Video Call consistently improves speaking skills over time.

The rollout of new features also shows that Duolingo is well-versed in gamification systems. Namely, its Energy system released in early July is designed as users’ “learning battery,” whereby multiple correct answers in a row earn Energy while mistakes cost Energy points.

This is another approach to keep the freemium model as attractive as possible, while still enticing users to upgrade to paid features.

For full-year 2025, Duolingo raised its guidance to 32% YoY growth. The company improved its adjusted EBITDA margin from 27% in Q2 2024 to 31.2% this quarter. For the full year, this profitability metric, showing how much revenue is left after operating costs – but before taxes, interest, depreciation, and amortization – is now 28.75%.

Duolingo’s Stock Price Target (NYSE:TGT)

Year-to-date, DUOL stock gained 12.75% in value, currently priced at $367 per share. At this price point, 12 analysts recommend buying, while 9 recommend holding, with zero bears in the sell camp.

Against the average 52-week price of $346.44, the average DUOL price target is $496.81 per share, according to WSJ’s forecasting data. The bottom price target of $390 is also significantly higher than the present price level, while the ceiling DUOL price target is $600 per share.

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