No doubt, 2024 was the year of artificial intelligence (AI), but 2025 could be even better. Companies and individuals are still figuring out how to harness the power of AI, and because these systems make heavy use of machine learning, they are always improving.
Investors have been betting on the big AI companies, particularly the ones that provide the hardware that undergirds it. Those who owned giants like Nvidia and Broadcom in 2024 enjoyed massive gains -- 177% and 119%, respectively for those two stocks.
But many smaller companies that are using AI technology to provide traditional services in better ways look positioned to soar in 2025. Consider Upstart Holdings (UPST +0.91%), Lemonade (LMND +0.66%), and Revolve Group (RVLV +0.23%). Each of these companies is changing the way business is done in a specific industry, and their stocks could skyrocket this year.
1. Upstart: Lower interest rates mean better business
Upstart was a major stock market winner in 2021, gaining 271% that year. It went public in 2020, and the shares shot higher based on its massive revenue growth, which included one quarter with a four-digit percentage increase.
The company operates an AI-powered credit evaluation platform that it says approves more loans than traditional processes, but with lower risk to lenders. That's a powerful idea. However, things went sideways for Upstart pretty quickly as the young business didn't manage well during the subsequent period of high inflation and rising interest rates. With fewer people applying for loans, its revenue plunged and profits turned into losses.
NASDAQ: UPST
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Now, it's starting to recover. It's adding credit partners and launching new products, and it's poised to benefit as interest rates for consumers head back down. Management is expecting revenue to increase year over year in the fourth quarter, and Wall Street is expecting positive net income in 2025.
Unsurprisingly, Wall Street is split on this stock. Among the analysts covering the company, 33% rate the stock a sell while 28% say it's a buy. In line with its volatile history, their price targets on the stock over the next 12 to 18 months range from a 40% gain to an 82% loss. Given the uncertainties around the company's outlook, Upstart stock is an appropriate holding only for highly risk-tolerant investors, but it could be a winner this year.
2. Lemonade: Machine learning leads to lower losses
Insurance company Lemonade uses AI and machine learning in an effort to price its policies more effectively than legacy insurers, and further uses technology throughout its enterprise to accelerate and improve the customer experience. All of its technological parts connect to create a well-oiled machine.
That did not immediately translate to strong business results, however. As a young growth company, it has been reporting high losses, and its loss ratio has also been high -- in other words, it has been paying out too high a share of its premium income in claims, which is bad for the bottom line. But it's beginning to turn itself around from high losses and disappointing loss ratios.
Revenue growth has been brisk throughout its short history, and it continues to add customers and policies at a steady rate. It has expanded its offerings to include a full line of insurance products, with policies for almost every consumer need outside of healthcare. Customers are drawn to its low prices and the platform's ease of use.
NYSE: LMND
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Management has insisted from the get-go that Lemonade has a better system that would prove itself over time, and its results have been demonstrably improving over the past few quarters. In 2024's third quarter, its loss ratio dropped to 73% (from 83% in the prior-year period).
However, Wall Street expects it to continue booking losses for the foreseeable future -- it may be a few years before it reports positive net income. Yet Lemonade stock gained 144% in 2024, and if it keeps reducing its loss ratio, it could crush the market again in 2025.
3. Revolve: The future of fashion
Revolve's stock price doubled this year as the company began to make a turnaround. The online-only retailer sells clothing and related products on its AI-powered website, and its social-media-focused business is earning the loyalty of a broad cross-section of buyers.
The business struggled during the high-inflation years of 2022 and 2023, when its customers were tightening their belts. But it has since turned a corner. Revenue increased 10% year over year in 2024's third quarter, and net income rose 238%. Its trailing 12-month active customer count increased 5% year over year, the total number of orders placed was up 3%, and the average order value rose 1%.
NYSE: RVLV
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These "softer" metrics tell a more complete story about how Revolve's offerings are resonating with its core customers, and why it has so much opportunity. Revolve is the future of fashion, and its business is getting back to growth. If it maintains or even accelerates revenue while delivering profits and generating more cash, it could be a standout stock again in 2025.
