1 Artificial Intelligence (AI) Stock Down 75% to Buy Hand Over Fist in June
Investors are eyeing a major opportunity as Artificial Intelligence (AI) stocks have plummeted by 75% in June. This significant drop has led many to consider buying these stocks at a bargain, anticipating a potential resurgence. Experts believe that this could be a strategic move to capitalize on the market dip and invest in the future of AI technology. With the promising prospects of AI, investors are optimistic about the long-term growth potential of these stocks.
Lemonade has been developing artificial intelligence (AI) since 2015, long before the technology captivated Wall Street a couple of years ago. The company is using AI to transform the insurance industry by writing quotes in seconds, and paying claims in minutes instead of days or weeks. Lemonade has attracted over 2.5 million customers so far across its homeowners, renters, life, pet, and car insurance products, and the company has outlined a plan to grow its business tenfold over the next decade. Lemonade stock is down 75% from its record high set during the tech market frenzy in 2021. It was unquestionably overvalued back then, but it's now trading at an attractive level in light of the company's growth and its future potential.
New Way to Buy Insurance
Most traditional insurance companies have cumbersome processes, especially when it comes to claims. But Lemonade's AI-powered approach prioritizes automation, which ensures a fast and convenient customer experience. The company's AI chatbot, Maya, can provide an insurance quote in under 90 seconds via the Lemonade website, and for existing policyholders, AI Jim can settle claims in less than three minutes. Lemonade also uses AI to calculate the most accurate premiums, which can save customers a significant amount of money over the long term.
The company's lifetime value models use AI to predict the likelihood of each policyholder making a claim, switching insurers, and buying multiple policies. These models also assist with operational duties like marketing by identifying underperforming products or geographic locations so management can make strategic adjustments to maximize revenue.
Lemonade's Growth
In the third quarter of 2024 (ended Sept. 30), Lemonade highlighted some of the benefits of its AI approach. The company grew its in-force premium (IFP) by 24% year over year during that quarter, while reducing its workforce by 7% at the same time. Lemonade is bringing in more money per employee thanks to automation. In fact, the value of the company's IFP divided by its employee headcount more than doubled between the end of 2021 and the third quarter of 2024.
Fast-forwarding to the recent first quarter of 2025 (ended March 31), Lemonade's IFP surpassed $1 billion for the first time. It represented a year-over-year increase of 27%, signaling serious momentum in the business.
Lemonade's Record Year
During the first quarter of 2025, Lemonade's trailing-12-month gross loss ratio held steady at 73%. This is the proportion of premiums paid out as claims, and management believes the secret to a thriving insurance business is to maintain a gross loss ratio of below 75%. A growing IFP with a steady gross loss ratio translates to more revenue. After accounting for the premiums Lemonade paid forward to other insurers to reduce risk, its revenue came in at $151.2 million during the first quarter, a 27% jump from the year-ago period.
Lemonade is now expected to bring in $662 million (at the midpoint of the forecasted range) compared to $656 million previously. That would be a 26% increase from Lemonade's 2024 result, and it would also be a record amount of annual revenue. Management expects IFP growth to accelerate to a compound annual rate of 30% going forward, with the prediction that IFP will hit $10 billion over the next decade.
Lemonade Stock's Valuation
When Lemonade stock peaked in 2021, its price-to-sales (P/S) ratio soared to around 100. However, the 75% decline in the stock since then has pushed its P/S ratio down to just 5.2. If Lemonade grows its IFP to $10 billion over the next decade, its current stock price will likely be viewed as a bargain.
During the first quarter of 2025, Lemonade lost $47 million on an adjusted earnings before interest, tax, depreciation, and amortization (EBITDA) basis, primarily due to the effects of the California wildfires. Management believes adjusted EBITDA profitability might be achieved by the end of 2026. With Lemonade's current valuation, investors are being compensated for any known risks, and those willing to hold the stock on the journey to $10 billion in IFP could reap significant rewards.