These innovative companies could make patient shareholders richer in the long run.
Innovative technologies have regularly reshaped the world. In the last few decades, inventions like the personal computer, the internet, and the smartphone have dramatically enhanced human productivity, while creating tremendous wealth in the process.
And artificial intelligence (AI) promises to be the next transformative technology. In fact, research company McKinsey estimates that AI could boost global economic output by 16% (or $13 trillion) between 2018 and 2030.
Companies like Nvidia (NVDA 2.08%) and Lemonade (LMND -6.52%) could be major beneficiaries of that trend because both are using AI to shape the future of technology.
1. Nvidia: The gold standard in AI infrastructure
In 1999, Nvidia invented a graphics processing unit (GPU) that revolutionized the gaming and entertainment industries with its ability to render realistic computer graphics. But GPUs have also become the accelerators of choice for complex data-center workloads such as scientific computing and AI. Today, Nvidia holds over 90% market share in supercomputer accelerators, and its technology has become the gold standard in AI.
Forrester Research recently said Nvidia GPUs are synonymous with AI infrastructure, and Nvidia has consistently achieved top results in the MLPerf benchmarks, a series of tests designed to measure the performance of AI technologies.
That success stems from its evolution from chipmaker to full-stack computing company; Nvidia has augmented its hardware with a growing library of subscription software and developer kits that streamline the creation of AI applications for uses like genomic sequencing, speech recognition, robotics, and self-driving cars. Â
The company stumbled in its most recent quarter. Revenue rose just 3% to $6.7 billion, and non-GAAP earnings plunged 51% to $0.51 per diluted share, as high inflation caused a significant decline in demand for gaming chips.
But those headwinds are temporary, and Nvidia AI is shaping the future of several industries. Among other applications, it helps fintech companies stop fraud, manufacturers detect product defects, healthcare providers analyze medical images, and social media platforms drive engagement.
Nvidia puts its addressable market at $1 trillion, and the company should benefit greatly as AI continues to reshape the world. With shares trading at 12.3 times sales — a bargain compared to its three-year average multiple of 20.3 — now looks like a good time to buy this AI growth stock.
2. Lemonade: AI-powered insurance
Lemonade brings AI to the insurance industry in a quest to reduce friction and lower prices for consumers. Whereas traditional insurers use agents to sell policies and process claims, Lemonade handles that with AI-powered chatbots. That simplifies the sign-up process for consumers and reduces payroll expenses for the company.
More importantly, those chatbots can collect about 100 times more data per customer than traditional insurance forms. Lemonade uses that data in its AI engine, which quantifies risk and underwrites insurance policies. Eventually, that data advantage should allow the company to price policies more precisely than its rivals, meaning Lemonade should eventually achieve a loss ratio (i.e. claims payments as a percentage of premiums) below the industry average.
That has not happened yet. Lemonade posted a loss ratio of 86% in the second quarter, much higher than the property- and casualty-insurance industry average of 72.5% last year. But part of Lemonade’s strategy is bearing fruit. It surpassed 1 million customers just five years after its launch, which is approximately two decades faster than rivals like Allstate, State Farm, and Geico. So its digitally-native business model is clearly delighting customers.
Building on that, Lemonade saw its average premium rise 18% to $290 in the second quarter, and its retention rate improved 100 basis points to 83%. That translated into relatively strong top-line growth, as gross profit climbed 15% to $11.3 million. However, Lemonade is still investing aggressively in scaling up its business, and it reported a widening net loss of $68 million in the quarter.
Investors still have reason to be bullish in spite of that sizable loss. Most notably, Lemonade recently acquired Metromile, accelerating its expansion into car insurance. That deal will supercharge its AI engine with billions of driving miles worth of telematic driving data gathered from Metromile customers.
Lemonade estimates that car insurance adds $300 billion to its U.S. market opportunity, bringing the total to $400 billion. It also creates a significant cross-sell opportunity, since Lemonade estimates that current customers already spend $1 billion on car insurance per year.
Anyone who has recently purchased insurance or filed a claim would probably agree that the insurance business is in need of disruption, and Lemonade’s AI-powered business model has disruptive written all over it. That’s why risk-tolerant investors should consider buying this growth stock.
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