Stride, Inc. (LRN): A Contrarian Play Amid AI Hype?

The education technology sector has become a battleground of valuation debates, with Jim Cramer's skepticism toward Stride, Inc. (NASDAQ: LRN) contrasting sharply with the buzz around AI-driven peers. While Cramer argues that Stride's stock is “harder to justify” at its current valuation, a deeper dive into its fundamentals and competitive landscape reveals a compelling opportunity—one that may outperform its AI-focused rivals in the coming quarters. Let's dissect the data and see why investors might want to take a contrarian stance.

Stride's Case: Strong Fundamentals vs. Valuation Headwinds

Stride's Q2 2025 results were unequivocally strong: revenue surged 10.5% year-over-year to $587 million, while net income jumped 42.7% to $103 million. The company's enrollment growth—up 19.4% to 230,600 students—reflects the enduring demand for its K-12 and career-focused programs. Management also raised its full-year revenue guidance to $2.32–2.36 billion, a 10% increase over 2024 projections.

Yet, Jim Cramer's valuation concerns are valid: Stride's Forward P/E of 20 sits above its five-year average of 15, and its near-term resistance at $140–145 (as noted by analysts) suggests skepticism about its growth sustainability. However, this skepticism overlooks two critical factors: operational leverage and diversification.

The AI Comparison: Hype vs. Reality

Cramer's preference for AI stocks stems from their transformative potential, but the reality is more nuanced. Consider AI-driven peers like Coursera (COUR) and Duolingo (DUOL):

• Coursera trades at a Forward P/E of 38, yet its Q1 2025 revenue grew only 5.98% year-over-year, with net retention rates slipping to 91%. Its reliance on enterprise clients exposes it to macroeconomic risks as companies tighten budgets.
• Duolingo boasts a 20% EBITDA margin but faces saturation in its core language-learning market. Its AI-driven expansion into general education is still nascent and unproven.

In contrast, Stride's cash-rich balance sheet ($285 million in cash) and 24%–26% effective tax rate provide a margin of safety. Its partnerships with states and school districts—such as its virtual public school programs—create recurring revenue streams that AI-focused companies lack.

Why Stride Could Outperform AI Stocks in 2025

1. Proven Scalability: Stride's enrollment growth of 19.4% YoY is unmatched in the sector. Its K-12 Tutoring program and career training initiatives (e.g., MedCerts for healthcare) are high-margin, sticky revenue streams.
2. Valuation Safety Net: At a P/S ratio of 1.6x (vs. Coursera's 2.8x), Stride is cheaper relative to revenue growth. Its $2.3 billion addressable market in career education offers a clear path to compounding.
3. AI Integration Without Overvaluation: While Stride isn't an AI pure-play, its AI-driven personalization tools (e.g., adaptive learning algorithms) are already improving retention rates—without the premium pricing of dedicated AI stocks.

The Contrarian Play: Buy the Dip, Target $160

Analysts have raised price targets to $146 (Barrington Research) and $130 (Canaccord Genuity), but the Fibonacci target at $160 (highlighted in technical analysis) suggests upside potential if Stride meets its FY2025 guidance. The 200-day moving average support at $103 provides a robust floor, making this a low-risk entry point.

Risks to Consider

• Regulatory Headwinds: State education budgets could tighten, though Stride's diversified client base mitigates this risk.
• AI Overvaluation Contagion: If broader tech markets correct, Stride's stock might face collateral damage. However, its defensive, cash-generating model is more recession-resistant than speculative AI plays.

Final Verdict: A Bargain in Disguise

While AI stocks capture the headlines, Stride's organic growth, balanced valuation, and proven business model make it a safer, higher-conviction bet. Investors chasing AI's long-term potential should pair their exposure with a core position in Stride—a stock that delivers growth today, not just in a distant AI-fueled future.

The market's myopic focus on AI has created an opportunity to buy Stride at a discount. For disciplined investors, this is a “buy the dip” moment—one that could yield 20%+ returns by year-end. Act now before the valuation gap closes.