Duolingo 'Best-In-Class' Internet Stock, Says Morgan Stanley With 'Buy' Call: Retail Sentiment Flips To Extremely Bullish

The investment bank said Duolingo has the rare combination of rapid user growth, strong and expanding margins, and a clear generative artificial intelligence upside.

Morgan Stanley initiated coverage on Duolingo (DUOL) with an 'Overweight' rating and $435 price target on the company's shares, The Fly reported.

The vote of confidence from one of Wall Street’s biggest firms sent Duolingo shares up 10% to $370 on Wednesday. With 6.4% gains the previous day, it is the stock's best two-day run since August 2024.

"We see DUOL as a best-in-class consumer internet asset," Morgan Stanley analysts said in an investor note.

They said the language learning app has the "rare combination" of rapid user growth, strong and expanding margins, and a clear generative artificial intelligence upside.

The company also has a vast scope for monetization, they said, as it does not run ads, and the current monetization on the platform is about five times below mobile peers.

Morgan Stanley also believes Duolingo's market of language learners is far from saturated.

"With each growth vector magnifying the others we see DUOL as a structural compounder and model a 26% 5-year revenue CAGR," it said.

Earlier this month, JPMorgan reiterated Duolingo as its "Best Idea" in the online education sector, citing its strong prospects for user growth and monetization.  

In other corporate news, Duolingo said this week that it is adding a chess course, which includes the ability to play matches against an AI coach.

On Stocktwits, retail sentiment turned to 'extremely bullish' from 'bearish' a day prior, and message volume 'high'.

Several users posted comments suggesting that the backing from Morgan Stanley was a strong buying signal.

Shares of Duoling are up over 14% year to date.

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