Why Duolingo Stock Plunged 10% This Week
Key Points
Duolingo investors are selling the stock ahead of the company's release of its second-quarter results on Aug. 5.
The company is investing in AI content and is aiming for 100 million daily active users in 2028.
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Shares of the language learning company Duolingo (NASDAQ: DUOL) fell by 9.8% this week, according to data provided by S&P Global Market Intelligence, as investors grow increasingly concerned about AI disruption.
Duolingo will report its second-quarter 2026 results early next month, and shareholders could be paring back their holdings now, in anticipation of a rough quarter.
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AI has Duolingo investors worried
Duolingo's share price has nosedived over the past year, falling 66% as investors have become increasingly concerned that AI will disrupt Duolingo's business model.
Shareholders may have reacted this week to news that a yet-to-be-released OpenAI ChatGPT model went rogue and hacked a website. OpenAI was testing the model for its cybersecurity capabilities, and it broke free of its contained sandbox environment in search of the test answers.
Duolingo isn't a cybersecurity company, but its shareholders are already concerned that AI companies could disrupt the company's language learning and education app. A highly capable ChatGPT doesn't instill confidence that Duolingo can fend off AI competition.
Shareholders may be bracing for Duolingo's quarterly results
Duolingo is investing more in AI features to stay relevant, but it's coming at a cost. Management said gross margins will fall to 69% by the end of this year as AI-driven costs rise.
Duolingo has set a goal of 100 million daily active users in 2028 and is willing to sacrifice some higher margins to get there.
Investors will find out more about how well the company is achieving its goals when Duolingo reports its second-quarter results on Aug. 5. Still, it's clear from the share price declines this week that Duolingo has a lot to prove before regaining investor confidence.
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Chris Neiger 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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