(Bloomberg) — Duolingo Inc. (DUOL) shares fell as its costly strategy of using artificial intelligence features to attract new users was spurned by investors.

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The language learning app’s push of AI tools, like video calls with animated characters, cut its gross margin to 71.9% in the fourth quarter, according to a statement Thursday. That was down from 73.1% a year earlier and a bigger drop than analysts had expected.

Shares were down about 17% at 12:32 p.m. in New York, the steepest intraday drop since May. Duolingo’s been one of the biggest winners of AI momentum, rising more than 430% since the start of 2022.

“We’re not trying to optimize for AI costs at this moment in time,” Chief Financial Officer Matt Skaruppa said in an interview Thursday. “We haven’t decided to optimize between models or do all of the things you would to lower those costs over time yet,” he added.

The AI features have been a hit with users, however, with Duolingo’s most-expensive Max tier now accounting for 5% of its subscriber base. Paid users rose 51% to more than 40 million in the fourth quarter as Duolingo’s largest market of English learners in particular embraced the new offerings, Skaruppa said.

The spending also resonated with some analysts. The investments “set the company up for long-term success,” Needham analyst Ryan MacDonald, who rates the stock a buy, wrote in a note to clients. “We are willing to take the near-term pain for long-term gain.”

Duolingo’s full-year outlook encapsulates the tension in its AI strategy, as it forecast better-than-expected sales for the year but adjusted profit that lagged projections.

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