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Investing.com -- Morgan Stanley initiated coverage of Duolingo (NASDAQ:DUOL) with an “Overweight” rating and a Street-high price target of $435 driven by a rapid user growth, strong margin expansion potential, and significant upside from generative AI tools.

The brokerage said Duolingo’s user base, now at about 117 million, represents only 5% of the estimated 2 billion global language learners, leaving room for sustained growth.

Morgan Stanley (NYSE:MS) forecasts a 26% compound annual growth rate in revenue over the next five years.

Duolingo’s approach combines elements of mobile gaming and language education, giving it exposure to a $220 billion total addressable market where it currently holds less than 1% share.

The firm said the company’s gamified learning model, strong user engagement, and improving monetization form a durable “multi-faceted growth algorithm.”

"Duolingo has the rare combination of rapid user growth, strong and expanding margins, and clear Gen AI upside,” the analysts wrote.

Morgan Stanley sees Duolingo’s operating leverage driving EBITDA margins from current levels to 40% by 2029, with a longer-term potential of exceeding 50%.

It noted the company’s focus on viral branding and limited marketing spend helps amplify profitability.

Duolingo’s Gen AI-powered Max subscription tier, including video call features, is starting to drive a meaningful revenue contribution.

The note estimates Max revenue has increased tenfold in recent quarters to 6% of total revenue. The analysts believe this could represent a step-change in monetization if adoption continues.

The $435 target reflects the midpoint between a $335 base case and $530 bull case.

Despite its high valuation, the brokerage said Duolingo’s growth outlook and AI potential justify the premium.

Duolingo shares are down roughly 30% from recent highs but face no exposure to tariffs or significant macro risk, Morgan Stanley added.

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