When I graduated from college in 2006, I spent several years working for a software company using neural networks, machine learning, and artificial intelligence (AI) for advanced GIS and LiDAR applications. I knew the early stages and applications of such technology were awe-inspiring and incredible at the time, and I've written at length about the influence of AI on the enterprise world from an investing standpoint for more than a decade now.
One of my earliest AI-centric investments even recently became my first 100-bagger stock. And now I'm ecstatic that the broader investing world is finally coming to accept the increasingly tangible impact of artificial intelligence. So I'm always on the lookout for other AI stocks worth buying.
With that in mind, here are three AI stocks I'd buy with $1,000 right now.
1. Palantir Technologies: The 'Messi of AI'
As the advent of generalizable artificial intelligence systems became clear earlier this year, Palantir Technologies (PLTR -0.33%) CEO Alex Karp mused that his "software and company were built for this moment" leading up to the launch of Palantir's new Artificial Intelligence Platform (AIP) product in April.
Indeed, Palantir was built with AI and data science as its foundations. The new AIP product targets customers in the commercial and government sectors by combining the machine learning technologies it's already developed for industrial and military partners with the newest large language models that have dominated news headlines in recent months.
Wall Street has naturally taken note, with shares extending their year-to-date rally in recent days after Wedbush analyst Dan Ives assigned an outperform rating on Palantir with a $25 price target -- a roughly 40% premium even after last week's pop -- calling it the "Messi of AI," referring to soccer superstar Lionel Messi, and asserting it "has built an AI fortress that is unmatched." He suggested it's poised "to be a major player in this AI revolution over the next decade."
Indeed, with some estimates suggesting the AI market size could grow more than tenfold over the next decade to represent a $2 trillion-plus opportunity, Palantir's recent gains as a leader in the space could be just the beginning.
2. Amazon: An AI winner that will keep on winning
There are already plenty of reasons to buy Amazon (AMZN -0.01%) that aren't directly related to AI, from its advertising initiatives to its burgeoning AWS cloud business, to expanding margins in its core retail segment.
But at Amazon's AWS Summit 2023 in New York, the company noted that it's largely thanks to Amazon's deep expertise developing AI and machine learning technology for the past 25 years that "recent ML innovations have made the capabilities of generative AI possible."
As such, Amazon is effectively doubling down on developing generative AI projects to tackle everything from improving product search results to business intelligence, healthcare solutions, and interacting with the hundreds of millions of Alexa-enabled devices in use today.
Over the longer term, it seems clear that the rise of generative AI will only further entrench Amazon into both the enterprise world and consumers' lives. And it's an AI stock I believe should continue to generate outsized returns for investors for years to come.
3. Lemonade: Harnessing AI in the insurance industry
Lemonade (LMND -2.29%) is easily the smallest stock in this list, with a $1.5 billion market cap as of this writing, but it might well have the highest return potential. Shares of the mobile-centric insurtech company have already climbed nearly 60% year to date.
So why do I think Lemonade stock is still worth buying today?
It helps that Lemonade's founders made the decision early on to make the company a licensed insurance carrier, rather than "just" selling insurance policies backed by established industry giants (as some other small insurtech companies like Jetty or Hippo do). This gives Lemonade better control over its underwriting process, and the ability to drive expense ratios lower.
As for the actual AI aspect, it might seem like little more than a mobile app that makes it easy for consumers to buy renters, homeowners, life, pet, and auto insurance. But a closer look shows AI is engrained in virtually every aspect of Lemonade's business.
While incumbent insurance giants employ legions of agents and claims processors, for example, Lemonade customers primarily interact with the company through two AI chatbots: AI Maya asks all relevant questions and helps build insurance policies for customers in as little as 90 seconds, and AI Jim processes and pays many claims in as little as three seconds using sophisticated machine learning, natural language processing, and anti-fraud algorithms.
But that's only scratching the surface of Lemonade's AI capabilities. The company's "Cooper" AI instance saves it around 10,000 developer hours each year by monitoring servers, instantiating virtual environments, and pushing software builds into production. Its "CX.ai" instance tackles around a third of all customer requests, such as scheduling items, adding spouses, and moving homes.
Lemonade also uses machine learning to generate lifetime value (LTV) predictions for all customers and to plan every marketing campaign, governing around 86% of its marketing spending. The company employs AI for wildfire and weather analysis as well through its Watchtower program, automatically halting marketing and instituting delayed start dates for affected areas.
Better yet, Lemonade's business continues to rapidly scale and drive operating leverage. Management has told investors the company's current cash position should suffice to carry it through to sustained profitability without the need to raise additional capital.
Over the longer term, I see no reason Lemonade won't be able to rival the size of today's insurance industry behemoths. And I think investors who buy and hold now will be more than pleased with their decision.
