The Real Reason I Think Duolingo's Stock Is Crashing This Year
Key Points
Duolingo's stock has been in a free fall this year as investors appear worried about its long-term future.
The company's app, however, remains popular and showed strong growth last quarter.
The sell-off in Duolingo's stock has gotten extreme, and it may have created a good buying opportunity.
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Duolingo (NASDAQ: DUOL) stock has been in a free fall for some time. Last year, it crashed by 46%, and already in 2026, it's down another 39%. Things have gone from bad to worse for its shareholders.
Investors have been eager to dump the stock even though its underlying financials haven't been all that bad. The business is growing, and its margins look strong. Here's why I think the market is punishing the growth stock, and what it might mean for investors.
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Are investors overly worried about artificial intelligence (AI) destroying Duolingo's business?
A big trend this year has been the sell-off of software stocks due to concerns that artificial intelligence (AI) will cripple their underlying businesses. Thus far in 2026, the iShares Expanded Tech-Software Sector ETF has declined by 16%, while the S&P 500 has risen by 8%.
Duolingo helps people learn different languages through its app, and it can make learning fun and entertaining. It has proven to be a hit, with the company's daily active users totaling 56.5 million as of its most recent quarterly results (which went up until the end of March). But with AI chatbots being able to translate and potentially help people learn languages as well, investors are likely concerned that Duolingo's long-term growth prospects are questionable.
The narrative around AI disrupting and perhaps even destroying software companies is why I believe Duolingo's stock is down so much over the past year. Investors are eager to sell the stock despite its strong financial results, in anticipation of worse performances ahead. However, that could be a costly mistake given the company's strong underlying numbers.
Why the market may be wrong about Duolingo
AI will change and disrupt many businesses, and it already has. But that doesn't mean that Duolingo's business is doomed. Its app provides structure and a fun learning experience that can make it highly appealing to people who may not want to learn through a chatbot. Its recent earnings numbers suggest that demand is still there, with its paid subscribers rising by an impressive rate of 21%, to 12.5 million. The business may be facing some challenges and uncertainty ahead, but fundamentally, it remains solid.
If you're looking at the stock's slide, you may be compelled to conclude that it's doomed. However, I see a potential scenario in which the market has grossly overreacted, and Duolingo's stock may have tremendous upside. It'll require some patience, but I'm optimistic that the stock can and will recover.
Should you buy stock in Duolingo right now?
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David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Duolingo. The Motley Fool has a disclosure policy.
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