AI Boosts Duolingo's Growth as Market Fears Prove Short-Sighted

OpenAI's demonstration of GPT-5's language learning capabilities has sparked concerns among investors about Duolingo's competitive position in the market. The fear is that the rise of general AI might erode Duolingo's moat.

Contrary to these concerns, Morgan Stanley has released a report that suggests AI advancements are actually beneficial for Duolingo. The report argues that those who are bearish on Duolingo due to AI have missed the core element of its business. Following market fluctuations, Duolingo's stock saw a substantial gain of nearly 14% overnight.

Morgan Stanley identifies motivation as the biggest challenge in language learning, not technology. Most learners struggle with maintaining consistent practice, making user retention a vital factor. This is where Duolingo excels. With its focus on gamification and the integration of social features and engaging character designs, Duolingo differentiates itself within the industry. Despite being classified as a platform for "casual" learners, Duolingo boasts usage figures that are three times higher than its closest mobile competitor, Babbel. Furthermore, the ratio of its daily active users to monthly active users has doubled since 2019, indicating strong user engagement.

Analysts suggest that merely having a technically superior model is insufficient for a new competitor to pose a significant threat. They must offer a much improved experience without sacrificing fun or content depth, while quickly capturing market share before Duolingo can react—an enormously challenging endeavor.

Morgan Stanley posits that AI serves not as a disruptor but as an accelerator. The report highlights Duolingo as one of the few mid-cap Internet companies that have extensively integrated generative AI tools, improving learning outcomes, enhancing internal efficiency, and boosting commercialization.

Future advancements in AI models are predicted to "accelerate Duolingo's growth flywheel," enhancing its key performance indicators and deepening its competitive moat. Analysts are particularly optimistic about reducing content and code generation costs, enabling Duolingo to apply its core advantage—A/B testing—on new course modules that traditionally required significant upfront investment to evaluate learning outcomes.

Morgan Stanley maintains an "overweight" rating for Duolingo. The report concludes that market fears about AI are myopic—for Duolingo, AI is not a competitor but a potent enhancer, empowering the company to become stronger, more efficient, and more resilient.