Artificial intelligence (AI) could be the most revolutionary technology in a generation. Chatbots like OpenAI's ChatGPT have already boosted productivity in a number of industries thanks to their ability to instantly generate text, images, videos, and even computer code with plain language prompts.
Many companies -- including some you might not expect -- now deploy AI software applications, some with considerable success. Duolingo (NASDAQ: DUOL) and Docusign (NASDAQ: DOCU) are two great examples, having both recently launched updated AI products and services that are already generating revenue.
Here's why investors might want to buy both of these AI stocks for the long term.
1. Duolingo: AI could transform language education
Duolingo is the world's largest digital language education platform. It uses a mobile-first approach to make its interactive, gamified lessons available to anybody with a smartphone. The platform had 103.6 million monthly active users during the second quarter of 2024, which was a 40% increase from the year-ago period. In other words, it continues to grow rapidly.
Duolingo uses AI in several ways in the background of its platform. It's used to craft course content, generate visuals, and also to personalize each user's learning experience by observing their proficiency and feeding them lessons appropriate for their skill level.
The number of users paying a monthly subscription to unlock additional features soared 52% year over year during Q2 to 8 million, and this is where AI monetization comes in. At the end of 2023, Duolingo launched a new subscription tier called Max. It introduced two features: Explain My Answer, which uses AI to provide personalized feedback to each user based on their mistakes in a given lesson, and Roleplay, which allows users to practice their conversation skills in foreign languages using a chatbot interface.
Duolingo has been developing AI since 2013 as part of its long-term goal to provide an education experience capable of rivaling a human tutor. But it accelerated its progress by partnering with OpenAI, because using pre-made models like GPT-4 helps Duolingo roll out new features more quickly.
During Q2, the Max subscription was only available to around 15% of Duolingo's total users in 27 countries, but the company plans to continue rolling it out. It's likely to become a key growth driver because it's the most expensive tier on the platform.
Duolingo expects to generate as much as $738 million in total revenue in 2024, which would represent a 39% increase from last year. The company has already raised that forecast twice, as it continues to beat its own expectations with each passing quarter.
Duolingo stock currently trades at or near its record high, and it isn't cheap. Its price-to-sales (P/S) ratio of 21 is well above its average of 14.7 since it became a publicly traded company. That doesn't mean investors should avoid the stock. Duolingo's revenue is growing so rapidly that it won't look expensive for long. But it's important to take a multiyear view if you decide to invest, especially given the company's potential to monetize AI.
2. Docusign: Contract management will never be the same
Docusign is the world's most popular e-signature tool, but the company has expanded significantly to offer an entire portfolio of products to help businesses seamlessly draft, negotiate, and close contracts digitally.
Earlier this year, Docusign made a big pivot toward AI by rebranding its core platform to Intelligent Agreement Management (IAM). It's designed to solve a problem called the "agreement trap," which refers to the $2 trillion in economic value companies lose every year through poor contract management (according to Deloitte).
IAM introduces several new software tools to complement Docusign's original products. For example, Docusign AI assists businesses through the entire agreement lifecycle, from initial drafting to the final signatures. It can extract the key points from a contract to generate a summary for stakeholders to read, and it's also capable of spotting problematic clauses to protect the user.
Then there is Docusign Navigator, which is a digital repository where businesses can store their agreements. It uses AI to extract data from each contract so it knows when they are coming up to their expiration date, and will notify management. Plus, it features an AI-powered search tool that allows employees to rapidly find information without having to dig through individual agreements.
Overall, IAM can help businesses cut down on the 25,000 hours (on average) they waste developing contracts each year.
Docusign had 1.6 million paying customers at the end of its fiscal 2025 second quarter (ended July 31), which was a 16% jump year over year. It was the first quarter that IAM was available, but management said the platform drove larger average deal sizes and higher customer win rates. Plus, August sales of IAM were higher than June and July combined, which points to significant momentum.
Docusign's growth has been sluggish since pandemic restrictions were lifted in 2021, because digital document tools were no longer in high demand. The company's revenue only increased by 7% in the recent quarter, for example. But IAM could represent a turning point for the company because it adds an entirely new layer of efficiency to contract management.
Plus, unlike Duolingo, Docusign stock is down 80% from its all-time high set during 2021, and its P/S ratio is just 4.5 -- near the cheapest level since the company came public. Given Docusign's recent pivot toward AI, I think this could be a great entry point for long-term investors.
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Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Docusign and Duolingo. The Motley Fool has a disclosure policy.
