The artificial intelligence (AI) industry is expanding, and attractive opportunities exist outside of semiconductor stocks like Nvidia.
Semiconductor giant Nvidia has added $2.6 trillion to its market capitalization since the beginning of 2023, soaking up most of the value created by the artificial intelligence (AI) industry so far.
However, professional investor Cathie Wood believes software companies will eventually generate $8 in revenue for every $1 spent on chips from the likes of Nvidia, which could create a substantial opportunity for investors.
C3.ai (AI -1.21%) and Lemonade (LMND -0.24%) were developing AI software long before the hype took hold last year. Shares in both companies trade at under $30; here’s why they could supercharge your stock portfolio over the long term.
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 more than 40 ready-made and customizable AI applications used by businesses in 19 different industries, which helps them reap the benefits of the technology without having to build it from the ground up themselves.
Dow is a chemical manufacturing giant that uses C3.ai’s applications for predictive maintenance. AI monitors Dow’s equipment to calculate the probability of a failure, allowing engineers to remedy any issues before they become critical. Dow says C3.ai has reduced its downtime by 20%, which directly impacts production volume, revenue, and profitability.
Similarly, Georgia Pacific (which manufactures paper, packaging, and building materials) has rolled out C3.ai’s Reliability platform to monitor over 200 large production 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 solving problems rather than looking for them.
C3.ai sells its applications directly to businesses, but it also sells them through its extensive partnership network which includes all major cloud platforms like Microsoft Azure and Amazon Web Services. Those partners offer C3.ai’s applications to their customers to give them more AI options, and C3.ai gets the benefit of accessing a much larger pool of businesses.
In the recent fiscal 2024 fourth quarter (ended April 30), C3.ai had 487 customer engagements, which was a whopping 70% increase from the year-ago period, highlighting the fast-growing demand for AI in the corporate world. The company’s revenue hit a record high of $86.6 million during the quarter, marking a 20% increase, its fastest growth in almost two years. According to management’s forecast, revenue growth could accelerate further to 23% in the upcoming fiscal 2025 first quarter (ending July 31).
C3.ai trades at $28.55 per share as of the close on June 27, which is an 82% discount to its all-time high from the 2020 tech frenzy. Its valuation was completely unreasonable back then, but the company has grown consistently ever since, with more customers and an expanding product portfolio. Now might be a great time to buy in.
2. Lemonade
Lemonade has developed AI since it was founded in 2015 with an aim to disrupt the insurance industry, which is dominated by large, entrenched 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 assistance. That speedy, tech-centric approach to service helped Lemonade attract over 2 million customers so far, and it’s successfully acquiring younger cohorts in the 19 to 34 age bracket, which have historically been underinsured.
Internally, Lemonade’s Lifetime Value (LTV) AI models use swaths of data to calculate a customer’s likelihood of making a claim, switching insurers, and buying multiple policies, to ensure it charges the most accurate premium.
Plus, those models help reduce costs. The company’s loss-adjusted expense (LAE) ratio — which measures the cost of managing claims — is 7.6%, whereas 10% is typical across the industry. In fact, Lemonade’s insurance book has grown 22% over the past year at the same time the company shrank its workforce by 11%, which highlights the power of AI.
During the first quarter of 2024 (ended March 31), Lemonade’s in-force premiums (the total value of all active policies) hit a record high of $794 million, representing an increase of 21.5% from the year-ago period. Its gross loss ratio (the percentage of its premiums paid out as claims) also fell eight percentage points to 79% and is now in the ballpark of the company’s long-term target of 75%.
Those metrics resulted in a record $119.1 million in revenue during Q1, up 25% from the year-ago period. Lemonade is still generating losses at the bottom line, but they are shrinking, and management expects the company to be cash-flow positive by the end of this year. However, pulling back on expenses could lead to slower revenue growth and delay an expansion beyond its five existing segments: renters, homeowners, life, pet, and car insurance.
Nevertheless, reaching profitability will be a key milestone that could give investors confidence in Lemonade’s ability to operate a thriving, sustainable business over the long term. Its stock closed at $16.46 on June 27, which was an 89% discount to its all-time high. Like C3.ai, Lemonade was swept up in the tech frenzy during 2021, and its valuation soared to unsustainable heights. With the company making clear progress since then, the steep drop 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.
