The artificial intelligence (AI) industry is booming, and there are exciting opportunities outside of semiconductor stocks like Nvidia.
Semiconductor giant Nvidia has added $2.6 trillion to its market capitalization since the start of 2023, absorbing most of the value created by the artificial intelligence (AI) industry so far.
However, professional investor Cathie Wood estimates that software companies will eventually generate $8 in revenue for every $1 spent on chips from companies like Nvidia, which could create a substantial opportunity for investors.
C3.ai (IA -1.21%) And Lemonade (LMND -0.24%) Both companies have been developing artificial intelligence software since before the hype began last year. Shares of both companies are trading below $30; here’s why they could be a big boost to your long-term stock portfolio.
1. C3.ai
C3.ai was the world’s first AI company when it was founded in 2009. It now has a portfolio of over 40 ready-to-use, customizable AI applications used by companies across 19 industries, helping them reap the benefits of the technology without having to build it from scratch themselves.
Dow is a chemical manufacturing giant that uses C3.ai applications for predictive maintenance. AI monitors Dow’s equipment to calculate the likelihood of a breakdown, allowing engineers to address issues before they become critical. Dow claims that C3.ai has reduced its downtime by 20%, which has a direct impact on production volume, revenue, and profitability.
Similarly, Georgia Pacific (which makes paper, packaging, and building materials) has deployed C3.ai’s Reliability platform to monitor more than 200 major production assets, and plans to expand the partnership further. Georgia Pacific has already seen a 5% increase in equipment efficiency, and management says employees now spend 80% of their time solving problems rather than looking for them.
C3.ai sells its applications directly to businesses, but it also sells them through its extensive partner network that includes all major cloud platforms such as Microsoft Azure and Amazon Web Services. These partners offer C3.ai’s applications to their customers to give them more options in AI, and C3.ai benefits from access to a much larger pool of companies.
During the fourth quarter of fiscal 2024 (ended April 30), C3.ai recorded 487 customer engagements, representing a significant increase of 70% over the same period last year, underscoring the growing demand for AI in the enterprise world. The company’s revenue reached a record $86.6 million during the quarter, marking a 20% increase, its fastest growth in nearly two years. Management expects revenue growth to accelerate further to 23% in the first quarter of fiscal 2025 (ended July 31).
C3.ai is trading at $28.55 per share as of the close on June 27, which represents an 82% discount to its all-time high from the tech frenzy of 2020. Its valuation was completely unreasonable then, but the company has been growing steadily since then, with more customers and an expanding product portfolio. Now could be a great time to buy.
2. Lemonade
Lemonade has been developing AI since its founding in 2015 with the goal of disrupting the insurance industry, which is dominated by large, established companies. Lemonade uses AI across its entire business; it autonomously writes quotes, pays claims, calculates premiums, and even identifies areas where the company is underperforming.
Lemonade’s AI chatbot, Maya, can write quotes for potential customers in under 90 seconds via the company’s website. Its AI bot, Jim, can pay claims in under three minutes without human intervention. This fast, tech-centric approach has helped Lemonade attract over 2 million customers to date, and it’s successfully acquired younger cohorts in the 19-34 age bracket, who have historically been underinsured.
Internally, Lemonade’s Lifetime Value (LTV) AI models use volumes of data to calculate the likelihood of a customer making a claim, switching insurers, and purchasing multiple policies, to ensure it charges the most accurate premium.
Additionally, these models help reduce costs. The company’s loss-adjusted expense ratio (LAE), which measures the cost of handling claims, is 7.6%, compared to the industry average of 10%. In fact, Lemonade’s insurance portfolio has grown 22% over the past year, while the company has reduced its headcount by 11%, highlighting the power of AI.
During the first quarter of 2024 (which ended March 31), Lemonade’s in-force premiums (the total value of all active policies) reached a record high of $794 million, representing a 21.5% increase over the same period last year. Its gross loss ratio (the percentage of its premiums paid out as claims) also fell eight percentage points to 79% and is now within the company’s long-term target of 75%.
Those moves helped drive record first-quarter revenue of $119.1 million, up 25% from the same period last year. Lemonade continues to generate net losses, but they are narrowing, and management expects the company to be cash flow positive by year-end. However, the spending cuts could slow revenue growth and delay expansion beyond its five existing segments: renters, homeowners, life, pets and auto insurance.
Still, reaching profitability will be a key milestone that could give investors confidence in Lemonade’s ability to run a successful and sustainable business over the long term. Its stock closed at $16.46 on June 27, an 89% discount to its all-time high. Like C3.ai, Lemonade was swept up in the tech frenzy in 2021, and its valuation has soared to unsustainable heights. With the company having made clear progress since then, this sharp decline could be a great opportunity to buy the stock.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Lemonade, Microsoft, and Nvidia. The Motley Fool recommends C3.ai and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
