Successful investing usually involves selecting high-quality companies, buying their stocks at a reasonable price, and waiting for compounding returns to work their magic over many years.
But that's not the only way to Wall Street success. If you're willing to accept some extra risk, you could build a fortune by investing in tomorrow's business giants today. In the best of all worlds, you'll get started on these long-term winners before most investors catch on to their future greatness. You can end up empty-handed with this approach, and the strategy is best used as a small part of a diversified stock portfolio. But if you find a real winner in the early going, it can be a game changer that more than makes up for several disappointments.
On that note, let's check out a couple of stocks in the burgeoning artificial intelligence (AI) market that could make you millions a little bit faster. Everything has to work out just right, and you do have to start out with a fairly large investment stake to get in the short line to the millionaire club. Still, Life360 (LIF 2.12%) and Duolingo (DUOL 4.13%) are worth a second look as they're building their long-term plans around AI technologies.
NASDAQ: LIF
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Life360's ambitious expansion plans
Life360 may be a familiar name already. You might have used its services for years, and the company has been publishing financial results since 2019. The family and-pets location-tracker expert just hasn't been on the American stock market for long. Headquartered in Sydney, Australia, Life360 listed its shares on the Nasdaq stock exchange four months ago.
This stock is flying far below most investors' radars, and you probably don't think of Life360 as an AI expert. But it has nearly 71 million monthly active users (MAUs) across 170 countries, including 2 million paid subscriptions and 10 million location-tracking Tile devices. The Life360 smartphone app does some heavy AI lifting in its crash detection and digital safety services.
The company aims to double its user count while tripling annual revenue from $328 million to $1 billion over the next few years. Earnings before interest, taxes, depreciation, and amortization (EBITDA) are approximately breakeven today, but management forecasts a 25% EBITDA margin in the long run. New products and service features should appear over time, broadening the company's market appeal and boosting its top-line sales.
The investment case for Life360
So there's a serious growth story happening here, driven at least partly by Life360's AI expertise. The company's annualized sales have nearly tripled from $113 million in calendar year 2021, which works out to a compound annual growth rate (CAGR) of 53.5%. Yet, you can buy the stock for the modest price of 9.9 times sales.
This ambitious company has a market cap of just $3.3 billion today. I can't guarantee that Life360 will hit its ambitious goals anytime soon, but the stock price should soar if the company comes close to its stated ambitions. If deep user engagement leads to solid long-term growth, the company is headed in the right direction. According to market reports from Sensor Tower, the Life360 app inspires a market-leading amount of daily user engagement.
NASDAQ: DUOL
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Duolingo's innovative learning platform
One of the few companies that can challenge Life360's towering daily engagement ratio is Duolingo.
The language-learning platform with the meme-inspiring green owl mascot has 100 million MAUs and 8 million paying subscribers. Under the visionary leadership of CEO and co-founder Luis von Ahn, Duolingo has mastered the art of making repetitive learning fun. Adding gamification features such as achievement badges, weekly leagues, and "gems" has made a fun game out of a rote routine.
The central feature is the daily usage streak, of course. About 130 Duolingo users have kept their streak alive for more than 11 years and my own unbroken stretch goes back to June 2016.
I'm not fluent in 11 languages after all that. I approach the app like a language nerd, comparing and contrasting various language families while taking the occasional deep dip into a specific tongue.
And that freedom is an important part of Duolingo's refreshing appeal.
You can pick up the basics of French or German before going on a European vacation. You can focus on the Japanese language tree for years as part of a serious attempt to become fluent. You can play it like a game, branching out into the math and music courses when the mood strikes. These are all valid ways to use the Duolingo experience -- and the company will make some money from subscription fees or in-app advertising in every case.
Duolingo's engaging AI strategies
This innovator is leaning into the generative AI opportunity, of course. The top-shelf Duolingo Max subscription features AI-generated conversations in popular languages, an immediate AI analysis of mistakes you've made in recent lessons, and more. These features require a premium subscription so far, but could work their way into the ad-supported service later on.
"Right now, a lot of the AI-based features are in Max because it costs us money to serve those, so they're in the highest tier," von Ahn said in the latest earnings call. "We expect that the price for us of some of those AI features will come down because the cost of large language models (LLMs) is going down. At that time, we may make a decision that some of those features belong in the Super subscription or even the free tier." (Lightly edited for readability.)
This fun learning platform is attracting a ton of users, as noted earlier. The MAU count rose 40% year over year in the recently reported second quarter. Paid subscriptions rose by 52%. Investors have started to notice and Duolingo's stock price is up by 69% over the last year. However, you're probably looking at a future giant of online learning with a final reach far beyond the language-learning market. The $12.6 billion market cap you see today could look quaintly cheap in a decade or two.
