Duolingo’s stock has experienced a significant decline, dropping 38% from its peak of $529.05 on May 16th. This downturn began shortly after backlash emerged against the company’s CEO’s vision to prioritize AI as a core component of its business model. Despite a temporary surge in investor confidence, with the stock rising nearly 30% in late August, the gains quickly reversed, resulting in a 5% drop over the past eight days.
Analysts point to OpenAI’s GPT-5 demo as a key factor behind the recent stock plunge. The demonstration showcased the model’s capability to generate an entire language-learning application from a short prompt, including features like flashcards, progress trackers, and even a French-themed snake game. This innovation raised concerns among investors about Duolingo’s competitive position in the rapidly evolving AI-driven education sector.
Meanwhile, Duolingo’s corporate lawyers previously issued a warning in the company’s annual 10-K filing, noting the risks of new technologies like generative AI threatening existing brands through rapid scalability. The article underscores the broader implications for software companies, as rapid development and fierce competition can leave firms suddenly behind, perceived as outdated or inferior.
There is also an element of irony in the volatility of Duolingo’s stock. The company’s recent success was partly driven by the efficient use of AI, which helped boost gross margins and subscriber growth. However, the same enthusiasm for AI that initially drove the stock up also led to a sharp correction, highlighting the double-edged nature of technological innovation.
Other competitors are also leveraging AI, such as Google, which reportedly activated a hidden ‘Practice’ feature in Google Translate, suggesting that the tech giant is already testing AI-driven language learning tools. Duolingo’s CEO has reiterated his commitment to AI, stating that it would reduce the company’s reliance on contractors without affecting full-time employees. However, he acknowledges the broader impact of AI on the workforce, predicting a shift where fewer people will accomplish more tasks, requiring new strategies for employee transition.
Meanwhile, legal action is also looming, as the law firm Pomerantz LLP has announced an investigation into Duolingo and its executives, alleging potential securities fraud or other unlawful business practices. The firm’s focus on investor rights adds another layer of scrutiny to the company’s AI strategies and financial reporting.