Duolingo's AI Advantage: Morgan Stanley Sees 20% Growth Potential

Following the unveiling of GPT-5's language learning capabilities by OpenAI, concerns have arisen about the competitive position of language learning platform Duolingo. Investors worry that the rise of general artificial intelligence could erode Duolingo's competitive advantages. However, a recent report from Morgan Stanley offers a contrasting perspective, suggesting that AI advancements could actually benefit Duolingo.

Morgan Stanley's report argues that the market has misunderstood the impact of AI on Duolingo. The report highlights that the biggest challenge in language learning is not technology but "motivation." Duolingo's strength lies in its gamified learning experience and social features, which have resulted in high user retention rates. This design keeps users engaged in language learning, thereby increasing user retention.

Duolingo's monthly usage time and conversation frequency already surpass those of its main competitors. In this context, a new competitor aiming to quickly capture the market without sacrificing engagement and content depth would face significant challenges. Morgan Stanley points out that technological superiority alone is not enough to disrupt Duolingo's market position.

Instead, AI is seen as an enhancer rather than a threat. Duolingo is one of the few companies that have extensively applied generative AI tools to their business, using AI to enhance learning outcomes, improve internal efficiency, and drive commercialization. Stronger AI models are expected to accelerate Duolingo's growth, improve its key performance indicators, and deepen its market moat.

Morgan Stanley maintains its "overweight" rating on Duolingo, noting that AI advancements will bring new opportunities rather than threats. AI technology will enable Duolingo to conduct A/B testing at lower costs, allowing it to explore and validate the effectiveness of new learning modules.

As technology advances, AI is not likely to replace Duolingo but could serve as a "super fuel," helping it solidify its position in an increasingly competitive market. By combining AI with its unique user experience, Duolingo has already achieved significant success in motivating learning. In an era where general AI is maturing, Duolingo has demonstrated its ability to coexist with new technologies rather than being disrupted by them. This unique market adaptability and innovative spirit will undoubtedly drive its future growth.