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The artificial intelligence (AI) revolution has, so far, been largely driven by infrastructure – powerful chips, sprawling data centers, and the backend tools that enable generative models like ChatGPT and Claude to even exist. Companies like Nvidia (NVDA) have led the charge, riding a wave of exponential demand for AI hardware. But according to analysts at Piper Sandler, 2025 could mark a pivotal turning point in the AI narrative - one that shifts the spotlight away from infrastructure and toward consumer-facing applications.
In a new note to clients, Piper Sandler argues that we are now entering what it calls the “next major AI wave,” a phase that emphasizes the widespread adoption of AI at the application layer.
In other words, after investing heavily in the tools and systems that make AI possible, the market is beginning to focus on the apps and platforms that will actually deliver AI to users at scale – from education and entertainment to productivity and search. The firm said the consumer AI market is expected to expand from $15 billion in 2025 to over $100 billion by 2030, fueled by lower inference costs and rapid user adoption.
Piper Sandler believes this evolution opens up a new window of opportunity for investors, and one that doesn’t necessarily rely on mega-cap hardware plays like Nvidia. The firm has highlighted three lesser-known names that it believes are well-positioned to benefit from this transition: Duolingo (DUOL), Reddit (RDDT), and Opera (OPRA). These companies are considered well-positioned thanks to their scale, broad user reach, and investments in AI integration. With that, let’s take a closer look.
#1 Stock Pick for the ‘Next Major AI Wave’: Duolingo
Duolingo (DUOL) is a leading global mobile learning platform widely recognized for its language education services. The company provides courses in more than 40 languages, such as Spanish, English, French, German, and Chinese, via its highly popular Duolingo app. It also offers a digital English language proficiency test called the Duolingo English Test, which is recognized by over 5,600 educational programs globally. Its market cap currently stands at $13.3 billion.
Shares of the language learning platform are up 4.1% on a year-to-date basis.
DUOL Poised to Benefit from the ‘Next Major AI Wave’
Duolingo has invested in an AI-powered application designed to revolutionize how people learn to practice conversation. In the third quarter of 2024, the company introduced Video Call within its highest subscription tier, enabling users to practice conversational skills through video calls with one of its characters. The advantages of this move were felt almost immediately. Video Call has been instrumental in boosting the conversion rate to the Duolingo Max subscription tier in Q4, which now comprises 5% of paid subscribers. Management said they are still in the initial stages of monetizing Max and believe there is significant potential for growth.
Looking ahead, management noted that the company will continue to leverage GenAI to enhance the Video Call experience. More precisely, the company aims to make Lily, its AI-powered conversation partner, more dynamic and interactive. I believe this will draw more users to the feature, thereby further increasing conversion rates for the Duolingo Max subscription tier. The company also plans to use GenAI to rapidly expand content across its language, math, and music courses.
How Did Duolingo Perform in Q4?
On Feb. 28, shares of DUOL plunged nearly 17%, even after the company reported solid Q4 results. The post-earnings drop was likely due to conservative full-year revenue guidance and a decline in gross margins.
The company’s fourth-quarter total revenue rose 38.8% year-over-year to $209.6 million, beating Wall Street’s consensus by $4.11 million. Notably, subscription revenue grew at a faster rate of 48% year-over-year to $174.3 million, accounting for over 83% of total revenue. Q4 outperformance was primarily fueled by stronger-than-expected Duolingo Max subscriptions, including upgrades from existing super subscribers, and sustained momentum in the company’s Family Plan, especially during the first days of the New Year’s promotion.
Let’s now take a look at more company-specific performance metrics. In Q4, the company exceeded 40 million daily active users, which represented 51% year-over-year growth, driven by product improvements and social-first creative marketing strategies that have led to improved user engagement and retention. Also, monthly active users stood at 116.7 million, up 32% year-over-year. Duolingo ended the year with 9.5 million paid subscribers, marking a 43% increase year-over-year. Notably, paid subscriber penetration as a percentage of MAUs rose both sequentially and year-over-year to 8.8%, reflecting the company’s considerable progress in rolling out the Duolingo Max subscription tier to most users.
On the profitability front, Duolingo generated $52.3 million in Adjusted EBITDA in Q4, representing 49% year-over-year growth and a margin expansion of 170 basis points to 25%. Also, net income grew 15% year-over-year to $13.9 million. And here we arrive at the first reason for DUOL’s post-earnings selloff: the gross margin. The company’s gross margin decreased by 120 basis points year-over-year to 71.9%, primarily due to rising AI costs associated with the increased adoption of Duolingo Max. However, management anticipates margin improvement in the second half of the year.
And the second reason is the company’s guidance for full-year revenue. The company expects its FY25 revenue to grow 29.75% year-over-year to $970 million at the midpoint. First, this indicates a slower pace compared to the 41% year-over-year revenue growth in FY24. Second, the guidance matched consensus estimates, disappointing investors who were expecting higher growth given the stock’s high valuation.
DUOL Valuation and Analysts’ Estimates
Analysts tracking the company foresee a 41.2% year-over-year increase in its adjusted EPS to $2.65 for fiscal 2025, with revenue expected to grow 30.17% year-over-year to $973.73 million.
In terms of valuation, DUOL’s adjusted forward P/E ratio stands at 51.02x, which is significantly higher than the sector median of 13.32x. It should be noted that the company warrants a premium, as its key growth metrics are well above the sector median. Moreover, I believe that Duolingo will continue to grow thanks to its attractive products and is well-positioned to capitalize on the “next major AI wave.”
What Do Analysts Expect for DUOL Stock?
Duolingo stock has a consensus “Moderate Buy” rating. Out of the 17 analysts offering recommendations for the stock, eight rate it as a “Strong Buy,” one gives a “Moderate Buy” rating, and the remaining eight advise holding. The mean price target for DUOL stock is $377.08, which is 12% above Wednesday’s closing price.
#2 Stock Pick for the ‘Next Major AI Wave’: Reddit
Valued at a market cap of $16.1 billion, Reddit (RDDT) is a community-driven forum where users gather to discuss a wide range of topics - from hobbies and advice to memes and more. What makes it unique is that its communities, known as subreddits, are centered around common interests, and people tend to trust these discussions more than standard online reviews or influencer content. The platform is also recognized for its emphasis on privacy and authenticity, enabling users to engage with each other while keeping their personal identities confidential.
Shares of the social media platform have tumbled 32% year-to-date.
RDDT Set to Capitalize on the ‘Next Major AI Wave’
Reddit hosts one of the largest collections of human-generated content online, and the company is leveraging AI to make this information accessible to everyone. In September of last year, Reddit introduced generative AI-powered translations to over 35 new regions across Europe, Asia, and Latin America, aiming to make its predominantly English-language platform more accessible to a broader audience. Machine translation is currently available in eight languages, and management has indicated that more are forthcoming as expanding internationally remains vital to their objective of making Reddit a global platform.
In late 2024, Reddit launched a new AI-powered search tool named Reddit Answers, designed to help users more easily find information on the platform. The tool answers user queries by generating well-structured responses and providing links to the original sources. It’s important to note that the tool is currently in its beta version and was launched in the U.S., available in English only. During the latest earnings call, management highlighted that Reddit Answers has proven to be versatile, with users relying on it “for everything from local updates about the L.A. wildfires to opinions on the best coffee maker.” This tool is expected to improve Reddit's functionality, potentially drawing in more new users.
Finally, the company continues to invest in gen AI as a key driver of productivity and performance. In 2024, Reddit rolled out its AI Headline Generator and acquired Memorable AI, both of which helped boost adoption among mid-market and SMB advertisers by enabling dynamic campaign creation and offering more predictive insights into creative performance. Additionally, the company recently introduced an LLM-powered ad review system that increases automated ad review by 70% and reduces review time from 30 minutes to just 1 minute, allowing advertisers to launch campaigns more quickly while improving ad quality and safety.
How Did Reddit Perform in Q4?
On Feb. 12, Reddit reported better-than-expected Q4 top and bottom lines as well as gave strong guidance for Q1. Nevertheless, RDDT stock slumped more than 5% in the subsequent trading session as a significant increase in expenses and a miss on global daily active uniques overshadowed strong headline figures and guidance.
Reddit’s fourth-quarter total revenue grew 71% year-over-year to $428 million, topping Wall Street’s consensus estimates by more than $22 million. Advertising revenue, accounting for 92.2% of total revenue, increased 60% year-over-year to $394.5 million, fueled by widespread growth across objectives, channels, verticals, and geographies. Notably, performance advertising contributed to over half of the growth in Q4, representing about 60% of total ad revenue. Other revenue stood at $33.2 million.
Turning to profitability, the company experienced a 420 basis point improvement in gross margin year-over-year, bringing its gross margin to 92.6%. This was largely supported by higher average revenue per user both in the U.S. and internationally. It is also worth noting that the company reported its second consecutive quarterly GAAP profit. This came even as total costs and expenses in Q4 soared 52% year-over-year to $374.8 million, driven primarily by a 69% increase in R&D spending to $188.6 million. With that, its net income quadrupled year-over-year to $71 million, and GAAP EPS came in at $0.36, smashing expectations by $0.11.
Meanwhile, Reddit’s user base continues to experience solid growth. The company’s Daily Active Unique Users (DAUq) surged 39% year-over-year to 101.7 million. However, this figure fell slightly short of the expected 103 million. This likely resulted from changes to the Google algorithm during Q4, which affected searches for Reddit. During the earnings call, management stated, “Traffic from search has recovered so far in Q1, and we’ve regained momentum.”
Looking ahead, Reddit anticipates Q1 revenue to be between $360 million and $370 million. Also, adjusted EBITDA is expected to be in the range of $80 million to $90 million. The lower end of both projections exceeded analysts’ expectations at the time of publication.
RDDT Valuation and Analysts’ Estimates
According to Wall Street estimates, RDDT is expected to post a GAAP EPS of $1.16 in FY25, a significant improvement from a loss of $3.33 per share in the prior year. Moreover, analysts project a 39.22% year-over-year increase in the company’s revenue to $1.81 billion.
In terms of valuation, RDDT stock is expensive even after the recent drop. The company’s forward EV/Sales and Price/Sales ratios are 7.68x and 8.69x, respectively. This represents a substantial premium compared to the sector’s median levels of 1.81x and 1.07x, respectively. However, the company’s strong business fundamentals and potential gains from the “Next Major AI Wave” help justify this premium.
What Do Analysts Expect for RDDT Stock?
Wall Street analysts have a consensus rating of “Moderate Buy” on Reddit stock, with a mean target price of $187.19, which indicates a massive upside potential of 70% from the stock’s Wednesday close. Among the 22 analysts covering the stock, 12 recommend a “Strong Buy,” one rates it as a “Moderate Buy,” seven suggest holding, and two give a “Strong Sell” rating.
#3 Stock Pick for the ‘Next Major AI Wave’: Opera Limited
Opera Limited (OPRA) is a technology company that has established a strong reputation in web browsing, AI-powered content delivery, and digital advertising over the years. Its offerings include the standard Opera Browser, the gaming-centric Opera GX, and various AI-driven features such as Agentic Browsing. These initiatives have allowed it to remain competitive in a market dominated by giants like Google Chrome, Apple Safari, and Microsoft Edge. OPRA has a market cap of $1.23 billion.
Shares of the web application development company have slumped 17.6% year-to-date.
OPRA Positioned to Ride the ‘Next Major AI Wave’
Opera has been heavily investing in AI, focusing on a range of applications from Agentic Browsing to AI-driven image recognition and the integration of DeepSeek. For instance, the company developed a browser entirely centered on AI functionality, which stands out as a distinctly unique offering. With Aria AI integrated directly into the browser, utilizing OpenAI's ChatGPT, it facilitates real-time search and interaction tools more easily than other browsers.
In Q4, the company released several new offerings and updates, including Opera R2, Opera One, and Opera Air, all featuring AI-powered upgrades, more streamlined interfaces, and improved overall performance. Opera One incorporated many AI features that were trialed in the Feature Drops program throughout 2024. The AI Feature Drops program advanced within the company’s developer browser initiative through the introduction of a unique Opera feature, AI tab comments.
Opera for iOS and Android was enhanced with AI image understanding capabilities in Q4. The company remains at the forefront of developing innovative AI features. Management is enthusiastic about Agentic browsing and believes there is a smart way to implement it, enabling AI to perform tasks for users with web-based efficiency.
Opera Ads has also kept pace, continuously refining its AI-powered algorithms to enhance targeting strategies and deliver improved outcomes for advertisers.
How Did Opera Perform in Q4?
On Feb. 27, Opera Limited released its fourth-quarter results. The company’s total revenue grew 29.1% year-over-year to $145.8 million, beating expectations by $7.97 million. This was largely due to advertising revenue, which totaled $93.3 million, growing 38% year-over-year and accelerating from the 26% growth rate observed in the third quarter. Ad revenue performance was particularly driven by e-commerce opportunities within Opera Ads. Despite concerns that search revenue would suffer, this segment showed solid performance, reaching $52.3 million, up 17% year-over-year, bolstered by the continued growth of Western and GX browser users.
Another bright spot was the company’s continued growth in annualized ARPU. This metric rose 37% year-over-year to $1.97. Notably, Opera’s total user base remained steady between the third and fourth quarters, holding at 296 million average monthly active users. This was due to the continued increase in high-ARPU users, which largely offset a decline in users with lower monetization potential.
On the profitability front, adjusted EBITDA exceeded the high end of the company’s guidance range, reaching $33 million - an 18.9% year-over-year increase. However, adjusted EBITDA margin fell to 23% from 25% in the same quarter last year, as the company continued to invest heavily in marketing. Also, Opera’s bottom line came in at $0.28, falling short of expectations by $0.24 and marking the most significant miss since 2022.
Looking ahead, Opera’s management appears confident about 2025, forecasting Q1 revenue between $130 million and $133 million, maintaining the 29% year-over-year growth rate from Q4. Regarding adjusted EBITDA, the company projects it to fall between $28 million and $30 million, translating to a 22% margin at the midpoint.
OPRA Valuation, Dividend, and Analysts’ Estimates
Analysts tracking the company predict a 17.71% year-over-year growth in its adjusted EPS to $1.13 for fiscal 2025. Moreover, Wall Street expects OPRA’s full-year revenue to advance 18.21% year-over-year to $568.17 million.
Meanwhile, the company pays dividends on a semiannual basis. Shares of OPRA currently yield a dividend of 5.73%, well above the sector median of 1.93%.
In terms of valuation, OPRA stock looks very cheap at current levels. Priced at 12.35 times forward adjusted earnings, the stock trades at a considerable discount to both the sector median of 18.02x and its five-year average of 23.76x.
What Do Analysts Expect for OPRA Stock?
Opera’s stock has a unanimous “Strong Buy” rating from the five analysts covering it. The average price target for OPRA stock is $26.40, suggesting upside potential of 69% from Wednesday’s closing price.
