Duolingo, Inc. (DUOL) shares plummeted 14.66% in the pre-market trading session on Friday, following the language learning app's fourth-quarter earnings release. While the company reported record revenues and strong user growth, its plans to significantly increase investments in artificial intelligence (AI) and automation weighed heavily on investor sentiment.

During the earnings call, Duolingo outlined a strategy to leverage generative AI for improving its products and scaling content creation. However, this investment is expected to pressure margins in the short term, with a projected 300-basis-point year-over-year impact on gross margin in the first half of 2025.

While acknowledging a "more moderate pace of profit growth" compared to recent years, Duolingo's CEO Luis von Ahn emphasized the long-term potential, stating, "We're still delivering margin expansion, just with an eye on building something even bigger." The company expects its adjusted EBITDA margin to expand by nearly 200 basis points to 27.5% in 2025, though the impact of AI costs will be more pronounced in the first half.