When OpenAI's ChatGPT inspired a heated public discussion of artificial intelligence (AI) and generative AI tools, it also lit a fire under many AI-related stocks. Some have raced faster and higher than they should have, setting the overvalued stocks up for a sharp price correction over the next year or two.
But there's a flip side, too. A couple of AI stocks have doubled year to date -- and I think they look like tremendous buys even after that dramatic rush.
So let me show you why I want to buy more Duolingo(NASDAQ: DUOL) after a 108% gain in 2023, and why Aurora Innovation(NASDAQ: AUR) strikes me as an interesting new idea even with a seven-month tailwind of 145% at its back.
Duolingo speaks the language of business growth
Some people see tools like ChatGPT as massive threats to Duolingo's language-learning system. Why would you either pay for Duolingo's premium service or sit through an ad-supported version of that lesson plan, when you can just ask ChatGPT, Google Bard, or Google Translate to show you translated snippets of foreign-language text for free? The soaring stock chart may not make it obvious, but this concern has been holding Duolingo's price gains back in 2023.
But quick and easy translation options are not the same as a carefully designed course in Spanish, Japanese, or Esperanto. With the free tools, you have to write your own lesson plan on the fly, trying to come up with examples that could help you understand essential concepts of your target language. That's not easy to do, especially when you don't actually know the non-English part of your chosen language pair. ChatGPT and Google Translate might give you the tools to build a new language skill, but Duolingo also shows you how to use those tools.
A variety of options also spruces up the experience. If you don't feel like taking the next step of the planned Spanish track today, you can double down on speaking or listening exercises instead. Or you can chase gems and league rankings in Duolingo's gamified portion. You're never trapped in an inflexible program, but rather free to explore a new language along several different pathways -- all endorsed by Duolingo's growing team of linguistics professors and experts.
Moreover, Duolingo is not afraid to take advantage of the purported threat. The company introduced Duolingo Max in March, adding detailed explanations of the problems and answers on your plate as well as an interactive roleplaying setting. It's an ultra-premium package, available to English speakers who are learning Spanish and French on an Apple iOS device, for the princely sum of $30 per month. By comparison, the "super Duolingo" plan that gives you an ad-free experience and a handful of bonus features costs just $7 per month if you commit to an annual plan.
And the Duolingo Max tools are powered by the same GPT-4 AI system that drives the latest version of ChatGPT.
Duolingo will probably expand it to more language pairs, app platforms, and markets over time, hoping to boost subscription revenue while also offering a uniquely helpful language-learning environment. And the feature is built around ChatGPT's internal engine.
So Duolingo's rumored bane could turn out to make the company a pretty penny and boost its reputation as a helpful system. I don't mind paying a premium for this oft-misunderstood company's stock, and I expect the green owl to expand its AI-boosted tutorials' reach over time. The language focus is just the beginning of a more ambitious long-term plan.
Aurora: Full throttle on the self-driving AI highway
This self-driving vehicle technologist looked expensive when I saw it skyrocket in early June. I took one look at a rosy analyst projection, wrote off the firm's discounted cash flow calculation because Aurora isn't generating any cash flows yet, and walked away.
After a deeper look at Aurora's rapidly evolving business model, I'm giving the stock a second chance. All things considered, the rip-roaring gains in recent months actually look like a partial recovery from last year's market flight from risky growth stocks.
You see, a deeper review of the company's business plan uncovered many positive details I missed at a glance. For instance:
- The management team actually has a solid plan to monetize its advanced self-driving platform, starting with a careful development and testing process to prove the system's real-world safety.
- The Aurora Driver package is already feature complete and road tested.
- The company has also developed partnerships with transportation giants such as shipping specialist FedEx, ride-hailing veteran Uber Technologies, truck builder PACCAR, and overall vehicle giant Toyota Motor. That's a first-class partner list.
Once the safety tests pass muster, Aurora is ready to collect revenue from hardware system sales and software licenses. Moreover, the Aurora Horizon service that ties the hardware and software together should deliver renewable subscription sales in the long run.
Times were hard in 2022 but the company's long-term future looks bright. Aurora also raised $820 of much-needed cash from a stock offering this week, helping the revenueless company keep the lights on until the business results start flowing. Seeing that particular move in the rearview mirror also lowers the risk of additional dilution.
The cash-flow expectations I disregarded in June may not be as unrealistic as I thought. It's a leap of faith, but a fairly reasonable one in the end.
So Aurora Innovation is not a risk-free stock, but it looks ready to tackle a truly massive market opportunity in self-driving trucks over the next couple of years. Aurora Innovation could be a good fit for your stock portfolio if you're willing to shoulder an above-average risk burden in exchange for potentially thrilling returns.
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Anders Bylund has positions in Duolingo. The Motley Fool has positions in and recommends Apple, Duolingo, FedEx, and Uber Technologies. The Motley Fool has a disclosure policy.
