Duolingo Shares Plunge 3.47% as Analyst Downgrade and AI Rivals Spark 4-Day Slide

Duolingo (NASDAQ: DUOL) shares fell 3.47% on Wednesday, marking the fourth consecutive day of declines as the stock hit its lowest level since March 2025. The intraday drop of 5.35% brought the cumulative four-day loss to 15.52%, underscoring growing investor concerns amid shifting market dynamics and strategic recalibrations.

Analyst sentiment has soured as D.A. Davidson downgraded the stock to “Neutral” in late August, slashing its price target by 40% to $300. The firm highlighted decelerating active user growth, attributing it to reduced social media marketing efforts and intensified competition from AI-first platforms. This downgrade amplified existing fears about Duolingo’s ability to sustain momentum in mature markets, where user acquisition costs are rising.

Competitive pressures have intensified with the entry of AI-powered rivals. Google’s August 6 launch of free, advanced language learning tools has disrupted Duolingo’s engagement model, raising questions about its ability to retain users. The move triggered a 7.3% selloff six days prior, reflecting market sensitivity to threats from well-resourced competitors. Analysts warn that such offerings could erode Duolingo’s user base and challenge its monetization strategies, particularly in free-tier-dependent regions.

Despite robust Q2 2025 financials—revenue surged 41% to $252.3 million—the stock fell 11% in the week following the earnings report. The company’s shift from user acquisition to monetization, including the rollout of Duolingo Max and gamified features, has driven premium subscriptions but slowed DAU growth. While this strategy aligns with profitability goals, it has sparked concerns about growth sustainability in a market reliant on user expansion.

Global expansion efforts, including forays into Chess, Music, and Math, aim to diversify Duolingo’s AI-driven offerings. However, regulatory delays in China for foreign AI models like Duolingo Max pose near-term hurdles. Analysts remain cautiously optimistic about long-term potential but emphasize execution risks. The stock’s current price of $282.52, 30% below the 12-month average price target, highlights a valuation gap, suggesting the market may not yet fully recognize its AI monetization roadmap.

Investor sentiment remains mixed, with a “Moderate Buy” consensus supported by an average price target of $451.87. Yet, the stock’s 50.3% decline from its 52-week high and extreme volatility—36 moves exceeding 5% in the past year—reflect lingering uncertainties. While the company raised its full-year revenue forecast to $1.01–1.02 billion, the recent selloff appears to overreact to near-term challenges, leaving room for investors who believe in its long-term AI-driven vision.