It's been a rough couple of weeks for tech investors. In early March, the tech-heavy Nasdaq Composite entered correction territory, meaning the index was down over 10% (but less than 20%). While the market has recovered slightly, volatility remains high, and many tech stocks are still trading well below their 52-week high marks.

For instance, Lemonade (NYSE:LMND) and The Trade Desk (NASDAQ:TTD) are down 48% and 24%, respectively. But nothing fundamental has changed about either company. Instead, rising yields have made bonds more attractive and stoked concerns about inflation, both of which have led investors to pull money out of stocks.

Despite these headwinds, this looks like an opportunity for long-term investors to buy a few shares of great companies at a discounted price.

Lemonade: A new kind of insurance company

Lemonade is a first-mover in the insurance technology industry. Unlike traditional insurance companies, Lemonade's digital platform was built to blend big data, artificial intelligence, and behavioral economics, making its business more efficient from end to end.

Arrow in the middle of a digital target surrounded by other symbols.

Image source: Getty Images.

The bull case is straightforward: By collecting more data than its rivals, Lemonade should be better at quantifying risk, pricing insurance policies, detecting fraud, marketing, and engaging consumers. That's a big deal. For instance, according to the FBI, insurance fraud costs the United States $40 billion per year in increased premiums. That comes out to roughly $400 to $700 per family, and it leaves plenty of room for improvement.

Collectively, the company's advantages should either boost its top line or reduce operating expenses like payroll, marketing, and claims payments. Ultimately, that should make Lemonade more profitable than its rivals. Then, when you factor in the size of the $5 trillion global insurance market, it's easy to see why investors are excited about this business.

The company's digital-first strategy has helped it attract new customers quickly, especially those under the age of 35. That has translated into rising gross profits, a trend that should continue as Lemonade's customers grow older and their insurance needs expand.

Metric

2018

2019

2020

CAGR

Customers

308,835

643,118

1,000,802

80%

Gross profit

$3.1 million

$11.7 million

$24.8 million

183%

Data source: Lemonade SEC filings. CAGR = compound annual growth rate.

As a final thought, investors should pay attention to Lemonade's ability to expand its business, both in terms of new products and new geographies. The company currently offers homeowners insurance (including condo and renters policies), pet insurance, and term life insurance, though management recently hinted the company is already working on the launch of its next major product. Its business is primarily focused in the United States. However, Lemonade is licensed to provide insurance in 31 European countries with operations up and running in Germany, France, and the Netherlands.

The Trade Desk: A challenger to the walled gardens

The Trade Desk's AI-powered ad tech platform helps marketers buy ad space and manage digital ad campaigns across channels like display, mobile, social, and connected TV (CTV).

Notably, the company operates the world's largest independent demand side platform, meaning it's not affiliated with any content networks. That differs dramatically from walled gardens like Alphabet's Google and Facebook, both of whom own content (think YouTube and Instagram).

While Google and Facebook have achieved incredible success in the digital ad market -- in fact, they accounted for a combined 52% of all U.S. digital ad spend last year -- their business models suffer from an inherent conflict of interest and transparency issues. That's because both companies provide the ad tech platforms marketers need to buy ad space, and they also sell ad space to those marketers. The Trade Desk CEO Jeff Green has likened this to grading your own homework.

By comparison, The Trade Desk's strategy is much more transparent and customer-friendly. Since it doesn't own any content platforms, The Trade Desk isn't incentivized to steer ad buyers toward any particular ad inventory. And while the company still trails Google and Facebook by a wide margin in terms of market share, it's growing more quickly. In other words, The Trade Desk is gaining ground.

Revenue

2015

2020

CAGR

Alphabet

$75.0 billion

$182.5 billion

19%

Facebook

$17.9 billion

$86.0 billion

37%

The Trade Desk

$114 million

$836 million

49%

Source: Alphabet , Facebook , and The Trade Desk SEC Filings.

The Trade Desk also has another advantage working in its favor: The digital ad market is enormous, and there is plenty of room for multiple winners. According to eMarketer, digital ad spend worldwide is expected to reach $526 billion by 2024, up 58% from $333 billion in 2020. That gives this tech company a lot of room to grow its business.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.