Artificial intelligence (AI) has been around for years, but it gathered momentum in 2023 on the back of OpenAI's ChatGPT online chatbot. It was the first time AI became available for mass consumption, and its ability to generate text, images, videos, and computer code sent businesses clamoring to adopt the technology.
Goldman Sachs believes AI will add $7 trillion to the global economy over the next decade. PwC, on the other hand, thinks AI will add $15.7 trillion to the global economy by 2030, and Cathie Wood's Ark Investment Management pegs that number at $200 trillion. No matter which forecast proves accurate in the long run, this is one of the largest financial opportunities in history.
C3.ai (AI 3.02%) and Lemonade (LMND 1.64%) were monetizing AI long before last year's frenzy. The companies are valued at just $3.8 billion and $1.2 billion, respectively, so they are tiny relative to the trillion-dollar tech giants most investors associate with AI (like Nvidia).
But they are unique opportunities, nonetheless. Here's how $1,000 split equally between shares of C3.ai and Lemonade today could turn into $5,000 over the next 10 years.
C3.ai was the world's first enterprise AI company
C3.ai was founded in 2009 with a mission to bring AI to businesses everywhere -- think of software-as-a-service (SaaS), but for AI. Today, C3.ai offers more than 40 ready-made and customizable applications to businesses in over 10 different industries, to help them accelerate their adoption of the technology.
C3.ai helps manufacturers and energy companies monitor thousands of items of equipment to predict and prevent catastrophic failures that would otherwise lead to costly downtime. Its applications also help financial institutions detect fraud and even make lending decisions.
The company has built an impressive partner network, which is a key component of its sales strategy. It includes Amazon, Microsoft, and Alphabet's Google, which offer C3.ai's technology to businesses on their respective cloud platforms. C3.ai's customer engagements soared 80% (year over year) in the recent fiscal 2024 third quarter (ended Jan. 31), and its partners helped close 27 of the 50 new deals the company signed.
C3.ai delivered a record-high $78.4 million in revenue during Q3, which was an 18% increase from the year-ago period. It was the fastest pace of growth in more than a year, and it marked the fourth consecutive quarter of acceleration. It's attributable to a shift in C3.ai's revenue model. The company used to charge subscription fees that required lengthy negotiations, but it now operates under a consumption model which allows businesses to sign up quickly and only pay for what they use.
C3.ai stock trades at $31.70 as of this writing, which is an 80% discount to its all-time high of $161. A $500 investment today will yield a fivefold return if the stock simply reclaims its best-ever level -- but that won't be easy. C3.ai lost so much value since the tech frenzy of 2021 because its growth began to slow, and because the opportunity in AI wasn't entirely clear at that stage.
With that said, the winds have shifted in C3.ai's favor on both issues; its revenue growth is expected to accelerate further under its new consumption model, and investors now recognize the potential of AI. Investors need only look at the rapid growth in C3.ai's customer engagements for proof of the explosive demand environment, and I think its stock is a great candidate to help turn a $500 investment into $2,500 within a decade.
Lemonade is transforming insurance using AI
The other $500 might be well spent buying a stake in Lemonade. The company has developed AI since it was founded in 2015, and the technology is now core to its operations. Lemonade sells renters, homeowners, life, pet, and car insurance to more than 2 million customers who benefit from a rapid claims process and premiums that are calculated by advanced AI models to improve their accuracy.
Lemonade's AI chatbot, Maya, can write quotes for new customers in under 90 seconds via its website. Its other AI bot, Jim, can pay claims in under three minutes with no human intervention. Behind the scenes, Lemonade also uses its Lifetime Value (LTV) models to calculate premiums based on mountains of customer, product, and geographical data.
Lemonade's latest LTV 9 model also improves the company's operational efficiency by identifying which products and markets are under or overperforming, so management can quickly reallocate financial resources to maximize revenue.
In the recent fourth quarter of 2023, Lemonade's average premium per customer hit a record-high of $369, thanks in part to more customers buying multiple policies. Its in-force premium (the total value of all active policies) also reached an all-time high of $747 million, which was a 20% increase from the end of 2022.
Both metrics are great indicators of Lemonade's forward momentum, and they helped the company generate a record $429.8 million in revenue for the year, which was a whopping 67% year-over-year increase. Lemonade might have grown even more quickly in 2023 if not for its focus on reaching profitability. While it isn't there yet, it did make substantial progress throughout the year.
Like C3.ai, Lemonade stock is down sharply from its best-ever level. It trades at $17.77 as of this writing which, is an 89% discount to its all-time high of $163.93, valuing the company at just $1.2 billion. A fivefold increase would only take Lemonade stock a little more than halfway back to that all-time high!
Considering the U.S. car insurance industry was worth $353 billion alone last year, Lemonade has barely scratched the surface of its addressable market. Plus, the company only operates in the U.S., U.K., France, Germany, and the Netherlands right now, so it still has plenty of room to expand its geographical footprint.
Simply put, Lemonade won't have a shortage of opportunities to turn any investor's $500 into $2,500 over the next decade.
