The S&P 500 had a dream run in the first half of this year, rising 15% with almost no volatility. But it has fallen 5.7% since its July peak as investors digest weak economic data coupled with a currency shock in the Japanese yen.
History shows that the S&P 500 will always climb to new heights given enough time, so this correction is likely a buying opportunity. In fact, this could be a great opportunity for investors to buy artificial intelligence (AI) stocks at a discount ahead of what could be significant long-term growth.
According to many Wall Street forecasts, AI could add trillions of dollars to the global economy over the next decade, with contributions from both hardware and software companies. Here’s why investors with $1,000 to spare may want to split it evenly between stocks of Advanced micro devices (NASDAQ: AMD) And Lemonade (NYSE: LMND) now.
1. Advanced micro devices
AMD has emerged as a worthy competitor for Nvidia in the AI data center chip market. The new MI300X graphics processing unit (GPU) is already a hit with some of the world’s largest data center operators, such as Microsoft And Oracleand many customers are experiencing performance and cost advantages over Nvidia’s industry-leading H100.
But with Nvidia on the cusp of launching its next-generation GPUs built on its new Blackwell architecture — which could be up to 5x faster than its H100 — AMD can’t afford to stand still. That’s why it plans to launch the MI350 next year, and it will be based on a new architecture called Compute DNA (CDNA) 4, which could deliver 35x the performance of CDNA 3 chips like the MI300. AMD is hoping that this generation of GPUs will directly compete with Nvidia’s Blackwell GPUs.
But AI is now coming to personal computers and devices, meaning AI is processed on the device instead of relying on data centers to process every query. That will create a faster user experience when interacting with AI chatbots and other software. AMD just released the Ryzen AI 300 series for notebooks, the industry’s fastest neural processing unit (NPU). The company says more than 100 platforms with these chips will launch in the coming quarters, from leading computer manufacturers such as PKAsus, Acer and more.
Earlier this year, AMD said it had a 90% market share in AI-enabled personal computers, and the Ryzen AI 300 series could extend that dominance.
During the recent second quarter of 2024 (ended June 30), AMD’s data center revenue increased 115% from a year ago to a record $2.8 billion, including $1 billion in MI300 sales. The company’s client segment, home to its Ryzen AI chips, generated $1.5 billion in revenue, up 49%.
That strength is likely to continue for the foreseeable future. In fact, AMD just raised its full-year forecast for GPU sales to $4.5 billion (from $4 billion just three months ago). With AMD shares down 35% from their all-time highs, investors have a golden buying opportunity ahead of what could be a substantial phase of long-term growth.
2. Lemonade
Lemonade is an insurance company that is using AI to disrupt the renters, homeowners, life, pet, and auto insurance markets. The company is valued at just $1.1 billion, so it’s a small fish compared to its established competitors like Allstatewhich is worth $45 billion, or Geico, which is owned by the $922 billion Berkshire Hathaway conglomerate.
That said, Lemonade is making progress. It had over 2.1 million customers in the second quarter of 2024 (ending June 30), and it’s successfully attracting younger cohorts, who have historically been underinsured. Its tech-driven approach and commitment to philanthropy through its “Giveback” program are two reasons for its success.
Lemonade relies on AI chatbots to handle most customer interactions. Its Maya chatbot can write a quote for a potential customer in under 90 seconds, and AI Jim can pay claims in just three minutes without human intervention. With traditional insurers, the claims process can involve multiple phone calls and slow payouts, given the younger Americans hate When you see them on the phone, it’s no surprise that they flock to Lemonade.
Lemonade also uses AI internally to calculate premiums to ensure customers get the fairest possible price. It even uses AI to identify underperforming products and geographic markets so management can quickly adjust marketing spend. It’s created a wave of efficiency that has allowed the company to reduce its workforce by 9% over the past year, while also growing its insurance portfolio by 22%.
Lemonade had a record $838.8 million in in-force premiums at the end of Q2, with the average premium per customer also hitting a new record of $387. At the same time, the gross loss ratio (the portion of premiums paid out as claims) continued to decline, coming in at 79%. Lemonade says 75% is the sweet spot for a thriving insurance business, and it’s nearly there.
Lemonade shares are down 90% from their all-time highs, which were reached during the tech frenzy of 2021. It was undoubtedly overvalued then, but its recent weakness has been attributed to the company’s continued losses on the bottom line. However, it did manage to deliver positive net cash flow for the first time ever in Q2, and management believes it can maintain that consistently. That means Lemonade won’t have to turn to investors (or banks) for further funding for a while.
The steep decline has left Lemonade trading at a price-to-sales ratio of just 2.2, nearly the lowest level since the company went public four years ago.
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Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Berkshire Hathaway, HP, Lemonade, Microsoft, Nvidia and Oracle. The Motley Fool 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.
S&P 500 Sell-Off: 2 No-Brainer AI Stocks You Can Buy Right Now With $1,000 was originally published by The Motley Fool
