KeyBanc recommended buying Duolingo stock and expects it to rise 40%. What is the reason?

Investment bank KeyBanc recommended buying shares of education platform Duolingo with a target price that suggests they could rise by more than 40%. Analysts note that the company has strong fundamentals and unrealized growth potential. Its quotes soared at the opening of trading on August 18 by 5%.

Analysts at KeyBanc upgraded online language learning platform Duolingo from Neutral Sector Weight to Overweight, which is equivalent to a buy recommendation on its securities, and set a $460 target price on the stock, Investing.com reports . The new target implies a potential upside of about 41% relative to the last closing level on August 16.

Analysts' confidence is backed by the company's strong fundamentals: gross margins at 72% and strong financial strength.

Among key growth drivers, KeyBanc highlights the launch of Duolingo's Energy feature, which involves a focus on rewarding users for successes instead of penalizing them for mistakes, expected update announcements at Duocon's annual conference in September, and viral marketing campaigns.

Keybanc analysts noted that the recent wave of criticism related to the use of AI on the platform is only a temporary difficulty and does not carry long-term risks. At issue is the publication in April of an internal memo by company head Louis von Ana on the concept of AI-first ("bet on AI"). In the document, he wrote that Duolingo can't afford to "wait for technology to become 100% perfect" and must "move quickly, sometimes sacrificing quality," Business Insider recalls . The memo talked about replacing some tasks with artificial intelligence and implementing a new system for evaluating employees through the possession of automated skills, Investing.com specifies.

This caused concerns of Duolingo users and investors about a possible decrease in the quality of training on the platform and staff reduction: mass complaints appeared in social networks, and part of the audience began to delete the application, Polygon writes.

In an interview with The New York Times published last weekend, von Ahn admitted that he "didn't give enough context" when he unveiled the plan in April, and emphasized: Duolingo has no plans to lay off full-time employees because of AI adoption, but he added that the nature of engineers' work will change over the next five years: "They may no longer be doing routine tasks. It's more likely that one person will be able to do more than before, not that there will be fewer people."

After the publication of its quarterly report on August 7, which exceeded analysts' expectations, Duolingo's shares showed a powerful rally: the securities jumped by more than 30% during the day. The company reported revenue growth of almost 42% year-on-year and a 40% increase in the number of daily active users. The key driver was precisely the active transition to the use of generative AI, which allowed to expand the range of courses - including music and chess, said von Ahn.

In the following days, the growth continued, but on August 15, quotations slightly corrected on the background of the presentation of a new ChatGPT-5 model from OpenAI, which showed a competing language application, as well as due to profit taking by investors after a sharp rise, LiveMint recalls.

The stock jumped 5% on Monday, August 18.

In general, Duolingo securities are characterized by high volatility: over the year their value changed 33 times by more than 5%, emphasizes StockStory. Nevertheless, the long-term dynamics remains stable: over three years, the stock has added 241.6%, and over the last year has outperformed the growth of the consumer services sector in the United States. Simplywallstreet analysts believe that short-term fluctuations reflect market sentiment rather than fundamental risks.

According to MarketWatch, of the 25 analysts who track Duolingo's quotes, 16 of them recommend its securities to buy (Buy and Overweight ratings), eight advise holding them in a portfolio (Hold), and only one advises selling them (Underweight).

This article was AI-translated and verified by a human editor