Artificial Intelligence (AI) is the hottest trend in the market today. While there is certainly some hype surrounding it, AI seems to be here to stay and is poised to have a real impact on the economy. People and businesses are using AI to utilize and create all sorts of transformative applications. Taking photos like never before and analyzing data at unprecedented speeds are just two examples.
Companies are harnessing the power of AI to work better and faster, and many are disrupting the status quo and capturing market share. Some of these companies are established winners that are using their robust assets to take the lead, and others are small innovators that are disrupting the norm in niche segments of the economy.
Let’s look at an example from each category: Amazon (NASDAQ: AMZN) And Lemonade (NYSE: LMND) — and discover why each of these products can help you build a millionaire portfolio.
1. Amazon: Leading with Generative AI
Amazon has a long history of investing heavily in AI and is now focusing its attention and resources on incorporating and expanding generative AI. It uses AI across its many businesses, but the most exciting opportunity for AI is in Amazon Web Services (AWS), its cloud computing segment.
People who know Amazon primarily as an e-commerce giant may not realize that it is also the world’s leading cloud computing company. It is a $100 billion run-rate company and has 31% of the global market. Amazon has developed a competitive set of generative AI tools for AWS users that simplify access and create incredible opportunities. It has a suite of services in three tiers to meet different needs.
The base layer is for developers to build their own large language models (LLMs), which are the core foundation for generative AI. These are models that have been trained on so much data that they can start creating or generating without any intervention. This is what OpenAI’s ChatGPT is known for, and this is where NvidiaThe chips are coming in. They’re powerful enough to handle the data workload required to make this work, and it’s one of the main reasons Nvidia’s sales and stock have exploded over the past two years.
The next tier is for developers to use Amazon’s LLMs to generate AI for specific businesses, and the top tier includes ready-made solutions for businesses that don’t need custom services. One example is a tool that creates page descriptions for products in Amazon stores when a user enters a URL.
AWS accounts for about 17% of Amazon’s total revenue, but 61% of its operating profit. As AWS becomes a bigger part of the equation, profitability could increase. Amazon stock typically follows earnings, and that could drive Amazon stock higher in the coming years, leading to incredible gains for investors who buy now.
As with any great stock, whether it’s part of a millionaire-maker portfolio depends on how much you invest and how long you wait. Some stocks can make millions on their own; if you had invested $1,000 in Amazon stock when it went public, you’d now have over $2 million. I’m not sure it can do that again, but it can outperform the market and contribute to a diversified portfolio of winning stocks that together can lead to millionaire-maker status.
2. Lemonade: A Compelling AI Disruptor
Lemonade is using AI to fuel its innovative insurance model. It’s a young company, less than 10 years old, and has already attracted more than 2 million members. The company has reported steady, strong growth every quarter since going public four years ago. In the first quarter of 2024, in-force premium, which measures the average annual total number of policies, increased 22% year-over-year and revenue increased 25%.
Lemonade has a key advantage over traditional insurers because it’s built on a digital, AI-powered infrastructure. All of its components work together directly, and management touts this connectivity as the key reason its model will ultimately outpace its competitors. Traditional models that require more human intervention can’t keep up with Lemonade. However, it’s still building out its database as it rapidly grows and adds new members and policies, so it’ll take time to get to that point.
Management provided a recent example where the AI ​​mechanisms are already yielding significant results. In the insurance industry, the Loss Adjustment Expense (LAE) ratio measures how efficiently an insurer manages overhead costs. The standard for large companies is around 10%, but Lemonade’s is 7.6% despite its small size. The company attributes this to its reliance on technology to handle claims, which increases efficiency while improving the customer experience. It expects to see this kind of impact in more of its performance as it collects more data.
Meanwhile, it’s taking longer than investors would like to become profitable, and Lemonade shares are still down nearly 90% from their all-time highs. Granted, that was when it was trading at a nosebleed valuation. But now it’s trading at 2.5 times trailing-12-month sales, which is dirt cheap for a growth stock. It may take a while, but Lemonade could be a standout stock if its algorithms catch on with better data and it starts reporting profits.
A large investment in Lemonade today could grow to $1 million over many years if Lemonade can make its business profitable. Think about how small Lemonade is compared to market leaders like Progressive And Allstate.
If Lemonade can grow to a level where it generates as much revenue as its competitors, the stock could deliver serious returns and turn early shareholders into millionaires.
Should You Invest $1,000 in Amazon Now?
Before you buy stock on Amazon, here are some things to consider:
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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. Jennifer Saibil has positions in Lemonade. The Motley Fool has positions in and recommends Amazon, Lemonade, and Nvidia. The Motley Fool recommends Progressive. The Motley Fool has a disclosure policy.
2 Artificial Intelligence Stocks That Can Make You a Millionaire was originally published by The Motley Fool
