Duolingo Stock Crashes 70% on CEO Warning, DeepValue Sees Undervalued Entry Amid AI Fears

What happened

Duolingo's stock has plummeted to its lowest level since August 2024, falling 70% from its all-time high of $544, as the CEO warns of 'near-term tradeoffs' impacting investor sentiment. This crash continues a downward trend that started in May 2025, with a sharp 20% drop in November after management issued cautious Q4 bookings guidance to prioritize teaching quality over short-term monetization. Despite strong operational metrics in the DeepValue report—including 41% revenue growth, 50.5 million DAUs, and 29.5% Adjusted EBITDA margins in Q3 2025—market fears over AI competition and decelerating user growth have driven multiple compression. The report highlights that Duolingo trades at 7-8x 2025 revenue, near its attractive entry point of $165, but sentiment remains weak due to risks like AI-native threats and potential DAU slowdowns. Investors now face a stock at depressed levels, offering potential upside if growth sustains, but with heightened uncertainty from management's tradeoff warning.

Implication

The current price near $174 aligns with DeepValue's attractive entry point, providing a margin of safety if Duolingo sustains mid-20s% revenue growth and expands its AI-tier mix. However, risks are elevated: the CEO's warning signals possible further deceleration in bookings or user engagement, which could trigger downside if DAU growth falls below 20% for multiple quarters. Investors must closely monitor Q4 2025 earnings for validation of growth trends and management's execution on AI-driven quality improvements. The report's base case implies 25-60% upside, but the bear case at $130 looms if AI competition intensifies or margins compress from increased investments. Thus, a cautious, phased investment approach is warranted, with re-assessment in 6-12 months based on DAU stability and Max subscriber adoption.

Thesis delta

The news reinforces DeepValue's potential buy thesis by pushing the stock toward the attractive entry level, but adds near-term uncertainty from the CEO's warning about tradeoffs. This does not change the core investment case, but heightens the need for vigilance on DAU growth and booking trends over the next two quarters to confirm resilience against AI headwinds.