Anthony Di Pizio, The Motley Fool
5 min read
Many of the artificial intelligence (AI) stocks that led the broader market higher over the last few years are currently pulling back, which is weighing on indexes like the S&P 500 and the technology-heavy Nasdaq-100. In fact, the Nasdaq-100 plunged by 5.5% last week alone, and more downside might be ahead.
But the broader market has always recovered to new highs over the long term, so sell-offs tend to be buying opportunities. I’m going to share two stocks that could become absolute bargains if the tech sell-off intensifies, particularly because they stand to benefit from the expanding adoption of AI over the long term. Read on.
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1. Duolingo: A leader in digital language education
Duolingo (NASDAQ: DUOL) operates the world’s largest digital language education platform, placing highly interactive lessons at the fingertips of practically anyone with a smartphone. Despite rallying over the last six months, Duolingo stock remains 73% below last year’s record high. Investors have been worried that AI could disrupt its platform, but management’s medium-term growth forecast suggests those concerns might be overblown.
Duolingo had 58.7 million daily active users (DAU) as of June 30, a 23% increase from the same time last year. The company is currently prioritizing user growth ahead of monetization, a strategy it hopes will see its DAU hit 100 million by 2028. If it achieves that target, management will have a much larger user base to monetize through subscriptions, potentially fueling a significant increase in its revenue and earnings.
AI will play a central role in the Duolingo experience going forward. Paying subscribers can already access a feature called Video Call, where a digital avatar named Lily will help them practice their foreign language speaking skills. But the company plans to introduce more speaking exercises into the free version of the app because they are more engaging, which could attract more users.
Duolingo generated $1.14 billion in revenue over its last four reported quarters, placing its stock at a price-to-sales (P/S) ratio of just 6, a steep discount to its five-year average of 14.4. Plus, Wall Street expects the company to grow its revenue to $1.37 billion in 2027 (according to Yahoo! Finance), so its stock looks even cheaper on a forward basis with a P/S ratio of just 4.7.
