The technology sector came back to life in 2023 after suffering heavy losses in 2022. Investors are particularly focused on companies that benefit from artificial intelligence (AI), which is where some of the strongest stock market gains came from last year.
Shares of Duolingo (NASDAQ:DUOL) And Spotify (NYSE:SPOT) have delivered returns of 59% and 130%, respectively, over the past 12 months. Both companies are using AI in their own unique ways, and this could help them accelerate their growth in the coming years.
For this reason, it is not too late for investors to buy both stocks.
1. Duolingo
Duolingo operates the world’s largest digital language education platform. It takes a mobile-first approach and delivers fun, engaging and interactive lessons to its 88.4 million monthly active users. The company has been developing AI to improve user experiences since 2013, but is now working with ChatGPT developer OpenAI to accelerate this progress.
Duolingo operates a freemium model, meaning it monetizes free users by showing them ads and offers paid subscriptions for users who want to accelerate their learning. In the fourth quarter of 2023, 6.6 million Duolingo users paid a monthly subscription, up 57% year over year. Part of that growth was driven by a new, more expensive subscription tier called Duolingo Max, which introduced two AI features.
Roleplay is an AI-powered partner for users who want to practice their conversation skills in a foreign language. Explain My Answer, on the other hand, uses AI to give users personalized feedback based on their mistakes in a particular lesson. Duolingo’s long-term goal is to provide a teaching experience similar to that of a human tutor, and these AI tools are an important step in that direction.
Duolingo achieved record revenue of $531.1 million in 2023, up 44% year over year. This was an impressive result given the difficult economic conditions for consumers, led by increased inflation and rising interest rates. The company also made a profit of $17.7 million, a big difference from its net loss of $58.6 million in 2022.
Duolingo is unique because about 90% of user growth occurs organically, meaning the company’s marketing costs are relatively low. The largest expenditure is actually on research and development, with the main focus being on improving the platform and developing AI.
Duolingo estimates that two billion people worldwide are learning a foreign language, so the company has only scratched the surface of its addressable market. Given the company’s rapid growth, profitability and future prospects, it’s no surprise that the stock is up 59% in the last 12 months and is trading near an all-time high. For the same reason, it still looks like a good buy at the moment.
2. Spotify
According to Statista, Spotify is the largest music streaming platform in the world with a market share of 31%. Tencent Music comes in second with a share of just 14%. Competition in this industry is fierce as each streaming provider offers their customers a similar catalog of music, so they can only differentiate themselves based on their technology and other content they can deliver.
When it comes to content, Spotify is a popular podcast platform and home to the most popular show in the industry: The Joe Rogan Experience. The two parties have just signed a new contract worth an estimated $250 million over several years. Additionally, last year, Spotify rose from its backlog to become the world’s second-largest audiobook platform AmazonAudible offers more than 375,000 titles. Spotify Premium subscribers can listen to 15 hours of audiobooks each month and have the option to pay for more, opening up a new revenue stream for the company.
On a technology level, Spotify uses AI in its content recommendation engine to learn what each user likes so it can recommend more of it, increasing engagement. Spotify also has a feature called AI DJ, which curates playlists tailored to each user with commentary from a software-generated voice-over.
Outside of AI, the company introduced a unique feature last year called Clips to help artists reach their audiences. Clips is based on short videos and therefore offers a similar content format to TikTok and Metaplatforms‘ Instagram Reels, helping Spotify appeal to younger users. During the 2023 Spotify Wrapped campaign, 40,000 artists used clips and generated 725 million views, with more than half coming from Gen Z users.
Spotify ended 2023 with 602 million monthly active users, up 23% year-over-year. The result boosted revenue 13% to a record $14.1 billion for the year. CEO Daniel Ek has a goal of reaching one billion users by 2030, which means there’s still plenty of growth left in the tank.
Despite Spotify stock’s 130% rise over the past 12 months, it is still trading 17% below its all-time high reached during the tech boom in 2021. So despite all the progress the company has made in the last three years, investors can buy the stock today at a cheaper price than it did back then. That represents an opportunity given Ek’s long-term projections for its user base.
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Randi Zuckerberg, former director of market development and spokesperson for Facebook and sister of Mark Zuckerberg, CEO of Meta Platforms, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Duolingo, Meta Platforms, Spotify Technology, and Tencent. The Motley Fool has a disclosure policy.
“2 Artificial Intelligence (AI) Stocks Are Up 59% and 130%, Respectively, in the Last Year and Are Still Buying Today” was originally published by The Motley Fool