1 Ai Stock To Watch In 2025

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The rise of artificial intelligence (AI) is a trend that nobody can ignore. This rapidly advancing technology is already changing the business landscape with companies adding trillions of dollars to their valuations based on their prospects for harnessing the power of AI.

Understandably, investors are paying attention to the companies that will benefit most from this massive trend -- massive names such as Nvidia, Microsoft, and Amazon. But it's not just these tech giants that are well-positioned to win in the long run with the help of AI.

In education, Duolingo (NASDAQ: DUOL) has leveraged the the availability of affordable smartphones to build a global business teaching users new languages via its flagship Duolingo app. And now, the company is tapping into AI to add new features to its platform while overhauling its operations as well.

Digital learning and AI

The smart use of AI has enhanced Duolingo's offerings by making them more engaging and effective. For instance, the company employs the technology to make its service hyper-personalized to its users. With the help of machine learning, the tech company can learn from users' past behavior to create tailored learning plans and targets to support users with better outcomes.

AI also helps provide real-time feedback and support, which improves user engagement and the learning experience. Instant feedback and conversations with AI chatbots are just a few examples of how language learners can explore different subjects.

AI enhances operational efficiency and effectiveness

Beyond new features in the app, AI is already paying dividends for Duolingo by making it easier and cheaper to create world-class content. Generative AI can quickly build new lessons content at low cost and review this content for grammar and cultural nuances. The company said in its Q3 2023 shareholder letter, "Our trove of data has made AI a consistently important tool for us [...] Generative AI is accelerating our work by helping us create new content dramatically faster."

Beyond that, AI has also helped Duolingo expand its offerings and scale its service quickly. Generative AI features are a key selling point for Duolingo Max, the company's newest and most expensive subscription tier. As of Q2 2024, this tier had already expanded to 27 countries and made up 15% of the company's daily active users (DAUs).

The steady stream of new content and features has helped Duolingo sustain its impressive user growth. DAUs and paid subscribers increased 54% and 47% in Q3 2024, respectively. And the company has been able to achieve these gains profitably as net income soared from $2.8 million a year ago to $23.4 million in its most recent quarter.

New AI products and features

While Duolingo's existing business has benefited handsomely from AI, the most significant opportunity may lie in the future.

One area that will see a huge opportunity is conversational AI for immersive learning. For instance, Duolingo launched a Video Call feature for its premium subscription, where users can practice their conversational skills with Lily, a purple-haired teenage character with the ability to remember past interactions. Talking to Lily is highly personalized -- and will become even more so as Lily's AI capabilities improve over time -- which should contribute to an increasingly compelling user experience.

Then, there's the expansion of its offerings to enterprise customers. Presently, the tech company serves organizations through its "Duolingo for Business" program, which offers clients' employees access to its premium services. Duolingo is still in the early stages of targeting this market, and it's already looking at opportunities abroad.

What it means for investors

Duolingo has been firing on all cylinders lately with revenue growing by more than 40% over the last few quarters. As the young company leverages AI to streamline and grow its business, its near and long-term prospects look even more promising.

This is a stock investors should keep a close eye on in 2025 and beyond.

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Lawrence Nga has no position in any of the stocks mentioned. The Motley Fool recommends Duolingo. The Motley Fool has a disclosure policy.