Semiconductor giant Nvidia has added $2.6 trillion to its market cap since the start of 2023, absorbing most of the value created by the artificial intelligence (AI) industry to date.
However, professional investor Cathie Wood believes 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 (NYSE: AI) And Lemonade (NYSE: LMND) developed AI software long before the hype took hold last year. Shares of both companies trade for less than $30; here’s why they could boost your stock portfolio in the long run.
1. C3.ai
C3.ai was the world’s first enterprise AI company when it was founded in 2009. It now has a portfolio of over 40 ready-made and customizable AI applications used by businesses across 19 different industries, enabling them to reap the benefits of the technology without having to build it from scratch.
Dow is a chemical manufacturing giant that uses C3.ai’s applications for predictive maintenance. AI monitors Dow’s equipment to calculate the likelihood of a failure, allowing technicians to fix issues before they become critical. Dow says C3.ai has reduced its downtime by 20%, directly impacting production volume, revenue and profitability.
Similarly, Georgia Pacific (which produces paper, packaging and building materials) has rolled out C3.ai’s Reliability platform to monitor more than 200 major manufacturing assets, with 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 troubleshooting problems instead of looking for them.
C3.ai sells its applications directly to companies, but also sells them through its extensive partner network, which includes all major cloud platforms, such as Microsoft Azure blue and Amazon Web services. These partners offer C3.ai’s applications to their customers to give them more AI options, and C3.ai benefits from access to a much larger group of companies.
In the recent fourth quarter of fiscal year 2024 (ended April 30), C3.ai had 487 customer engagements, which was a massive 70% increase from the same period last year, highlighting the rapidly growing demand for AI in the enterprise world. The company’s revenue reached an all-time high of $86.6 million during the quarter, up 20%, its fastest growth in nearly two years. According to management’s forecast, revenue growth could further accelerate to 23% in the upcoming first quarter of fiscal year 2025 (ended July 31).
C3.ai is trading at $28.55 per share at close on June 27, an 82% discount to its all-time high from the tech craze of 2020. The valuation was completely unreasonable at the time, but the company has grown consistently since then, adding more customers and expanding its product portfolio. Now might be a good time to buy.
2. Lemonade
Lemonade has been building AI since its founding in 2015 with the goal of disrupting the insurance industry, which is dominated by large, established companies. Lemonade uses AI throughout its 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 assistance. That speedy, tech-focused approach to service has helped Lemonade attract more than 2 million customers to date, and it’s been successful in capturing younger cohorts, ages 19 to 34, who are historically underinsured.
Internally, Lemonade’s Lifetime Value (LTV) AI models use large amounts of data to calculate how likely a customer is to file a claim, switch insurers, and purchase multiple policies, ensuring the most accurate premium is charged.
What’s more, those models help drive down costs. The company’s loss-adjusted expense (LAE) ratio, which measures the cost of managing claims, is 7.6%, compared to an industry-wide rate of 10%. In fact, Lemonade’s insurance portfolio has grown 22% in the past year while the company has reduced its workforce by 11%, underscoring the power of AI.
In the first quarter of 2024 (ending March 31), Lemonade’s in-force premiums (the total value of all active policies) reached a record high of $794 million, up 21.5% from the same period last year. Its gross loss ratio (the percentage of premiums paid out as claims) also declined eight percentage points to 79% and is now near the company’s long-term target of 75%.
Those numbers resulted in record revenue of $119.1 million in Q1, up 25% from the same period last year. Lemonade is still generating losses on the bottom line, but they are narrowing and management expects the company to be cash flow positive by the end of this year. However, cutting back on spending could lead to slower revenue growth and delay expansion outside of its five existing segments: renters, homeowners, life, pet and auto.
Still, reaching profitability will be a major milestone that could give investors confidence in Lemonade’s ability to run a thriving, sustainable business over the long term. The stock closed at $16.46 on June 27, an 89% discount to its all-time high. Like C3.ai, Lemonade got caught up in the tech craze in 2021, sending its valuation soaring to unsustainable heights. With the company making clear progress since then, the steep decline could be a great opportunity to buy the stock.
Should You Invest $1,000 in C3.ai Now?
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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 Jan 2026 $395 calls on Microsoft and short Jan 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
2 Artificial Intelligence (AI) Stocks Trading Under $30 That Can Boost Your Portfolio was originally published by The Motley Fool
