Duolingo Stock Soars On Target Hikes: Is A Short Squeeze Brewing?

Duolingo Inc DUOL saw its stock spike over 8% on Wednesday thanks to bullish price target revisions from top analysts.

• Needham has upped its price target to $310
• JMP Securities set a new target at $275
• Bank of America chimed in with an increase to $298, and
• JPMorgan capped it all off with an upward revision to $303.

This wave of optimism stems from Duolingo's strategic use of Generative AI and large language models (LLMs). JPMorgan analyst Bryan M. Smilek stated, "We believe Duolingo is leveraging GenAI/LLMs to achieve its goal of teaching as effectively as a human tutor."

These technologies are "transforming the learner experience, increasing the velocity of product optimizations & content development, deepening teaching efficacy, & driving cost efficiencies,” he adds.

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Short Sellers Beware: Squeeze Potential Looms

But it's not just the rosy analyst outlook that's turning heads. Duolingo’s short interest metrics could set the stage for a thrilling trading environment.

With a short interest of 5.8%, there’s a moderate level of bearish sentiment suggesting some investors are betting on a price decline.

The days to cover stands at 5.82, meaning it would take almost six days of typical trading volume to cover all short positions. This scenario creates a ripe opportunity for a short squeeze if the stock keeps climbing.

Low Float, High Stakes: Volatility Ahead

Adding to the excitement, Duolingo's extremely low float of around 35-40 million shares makes it susceptible to significant price swings.

With daily volumes typically under half a million shares, even a minor buying or selling spree could lead to major fluctuations, amplified by large bid/ask spreads.

A Potential Rollercoaster Ahead

So, while Duolingo is currently riding high on positive analyst sentiment, traders should remain vigilant regarding short interest dynamics.

If the stock continues its upward trend, the potential for a short squeeze could lead to a wild ride, making this a thrilling stock to watch in the days ahead.

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