The stock market is experiencing a bull market driven by the excitement surrounding artificial intelligence (AI). With the potential for transformative technology, AI stocks have soared, and investors are eagerly looking for opportunities in this space. Let’s explore two stocks that have received high potential ratings for the AI bull market and could soar in value in the coming years: Upstart and Lemonade. These companies are already leveraging AI in their respective industries and have shown promising results.
Upstart
Upstart is a leading consumer loan originator and servicer that utilizes AI to screen loan applicants and assess their creditworthiness. By employing more than 1,500 variables and analyzing 44 million data events, Upstart has developed a credit rating system that outperforms traditional FICO scores. Their AI model achieves a 53% reduction in defaults compared to large banks while maintaining the same approval rate, or it enables 173% more approvals with the same default rate.
Currently focused on consumer and auto loans, Upstart has plans to enter the lucrative home equity line of the credit market, with an addressable market size of $2.7 trillion. This expansion presents a significant growth opportunity for the company. Additionally, Upstart aims to make a foray into the small business lending market. Despite experiencing a decline in share prices due to rising interest rates and tightening lending standards, Upstart expects to rebound and has already shown signs of recovery with sequential revenue growth in the current quarter. With a market cap of under $3 billion, Upstart has ample room for growth in the upcoming bull market.
Lemonade
Lemonade is an AI-first insurance company that uses AI technology to revolutionize the insurance market. Leveraging AI, Lemonade screens applicants and determines more accurate pricing for various insurance products. The company employs chatbots for customer applications and claims, and utilizes 50 machine-learning models trained on vast customer interaction data. These models generate lifetime value predictions for every customer, campaign, product, and geographical region where Lemonade operates.
Initially starting with renters insurance, Lemonade has expanded its offerings to include pet, auto, and homeowners insurance. While the company is currently operating at a loss as it prioritizes growth, it has experienced significant growth with a 56% increase in in-force premium, reaching $653 million in its most recent quarter. Furthermore, Lemonade has improved its gross loss ratio from 90% in Q1 2022 to 87% in Q1 2023, indicating progress towards profitability.
Despite facing skepticism from the market due to its unproven business model and ongoing losses, Lemonade has established itself as a leader in using AI within the insurance industry. With a market cap just above $1 billion and a 23% gain year-to-date, Lemonade possesses considerable upside potential if it successfully disrupts the insurance market.
As the stock market enters an AI-driven bull market, companies like Upstart and Lemonade are well-positioned to capitalize on the transformative power of AI. Upstart’s AI lending marketplace and credit rating system have the potential to revolutionize the consumer loan industry, while Lemonade’s AI-first approach to insurance has the capacity to disrupt the insurance market. Although both companies face challenges and uncertainties, they offer compelling investment opportunities for those who believe in the potential of AI. Investors should closely monitor these companies as they navigate the evolving landscape and leverage AI to drive growth and profitability.
