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Wall Street JournalInternet Stocks Need AI Profits In 2026, Analyst Says
Internet stocks are entering 2026 on shaky footing after lagging behind the broader market in 2025, as execution missteps, intensifying generative AI competition, and uneven margins overshadow a relatively stable macroeconomic backdrop, raising the stakes for companies to demonstrate real AI-driven growth and profitability.
JP Morgan analyst Bryan M. Smilek said internet stocks trailed both the S&P 500 and the Russell 2000 in 2025, attributing the gap to operational missteps, mounting competitive threats from generative AI, and non-linear margin trajectories.
Smilek noted that while macro conditions remain broadly supportive, tariffs and changes to the de minimis trade exemption continue to weigh on consumer sentiment.
Also Read: Which Internet Software Stocks Is JP Morgan Bullish On?
Although sentiment improved about 5% month over month through early December, it remains roughly 28% lower year over year and near record lows following the recent government shutdown and tariff actions.
2026 Outlook Hinges On AI Monetization
Looking ahead, Smilek said a stable consumer environment alone will not sustain valuations in 2026. Companies must deliver stronger execution and show tangible progress in AI monetization and profitability.
In education, he expects deeper integration with AI platforms to diversify traffic sources, alongside separate scaling of AI-enhanced learning products.
Firms with enterprise tech stack integrations, personalized learning support, large-scale data, proprietary content libraries, and proven outcomes are best positioned for the shift toward AI-driven education.
Smilek also expects agentic commerce adoption to accelerate. AI-driven traffic already accounts for about 1% of Etsy, Inc.’s (NYSE:ETSY) total traffic, while industrywide AI referrals surged roughly 1,200% year over year in October. Notably, AI-driven traffic converted about 16% better than non-AI traffic.
Stock-Specific Views
For Duolingo, Inc. (NASDAQ:DUOL), Smilek said investor sentiment remains negative, but early 2026 bookings and adjusted EBITDA guidance could point to upside. He stressed that Duolingo must deliver more than 20% bookings growth, stabilize daily active users, advance product initiatives, and expand margins in 2026. Smilek remains Overweight.
On Etsy, Smilek noted mixed sentiment but said sustained gross merchandise sales growth could offset margin pressure from investments in Depop, potentially supporting stronger share performance in 2026.
Smilek upgraded Coursera, Inc. (NYSE:COUR) to Overweight, arguing consensus estimates underestimate improving execution across product, go-to-market, and profitability.
He added that the pending merger with Udemy, Inc. (NASDAQ:UDMY) should create a more competitive AI-skills platform and accelerate AI product development.
Heading into 2026, Smilek rates Duolingo and Coursera Overweight, Etsy and Udemy Neutral, and Nerdy Inc. (NYSE:NRDY) and Chegg, Inc. (NYSE:CHGG) Underweight.
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Photo by DANIEL CONSTANTE via Shutterstock