artificial intelligence Artificial intelligence is all the rage in the market today. Despite some hype, AI seems to have staying power and is set to have a real impact on the economy. People and businesses are using AI to create and use all sorts of transformative applications. Never-before-seen photography and data analysis at unprecedented speeds are just two examples.
Companies are harnessing the power of AI to improve their performance and speed, and many are disrupting the status quo and taking market share. Some are established winners using their strong assets to drive the effort, while others are small, innovative companies disrupting specific sectors of the economy.
Let’s take a look at an example from each category – Amazon (NASDAQ: AMZN) And Lemonade (NYSE: LMND) –And see why each can help you build an investment portfolio that can turn you into a millionaire.
1. Amazon: Leading the way in generative AI
Amazon has a long history of investing heavily in AI, and it is now shifting its focus and resources toward integrating and expanding generative AI. It uses AI in many of its businesses, but the most exciting AI opportunities are in Amazon Web Services (AWS), its cloud computing segment.
People who know Amazon primarily as an e-commerce giant may not realize that it is also the world’s leading cloud computing company. It $100 billion operating rate Amazon has a 31% global market share. Amazon has developed a competitive suite of generative AI tools for AWS users that simplifies access and creates incredible opportunities. It has a variety of services across three tiers to meet different needs.
The foundational layer is for developers to build their own large language models (LLMs), which form the backbone of generative AI. These are models that have been trained on so much data that they can start creating or generating their own without any intervention. This is what OpenAI’s ChatGPT is famous for, and this is where they build their own large language models (LLMs), which form the backbone of generative AI. NvidiaNvidia’s chips are at the forefront. They’re powerful enough to handle the volume of data needed to make this business work, which is one of the main reasons why Nvidia’s sales and stock have soared over the past two years.
The next level is for developers to use Amazon’s machine learning tools to generate AI for specific businesses, and the top tier includes off-the-shelf solutions for businesses that don’t need custom services. One example is a tool that generates page descriptions for products on Amazon’s stores when a user enters a URL.
AWS accounts for about 17% of Amazon’s total sales but 61% of its operating income. As AWS’s stake in the company grows, profitability could skyrocket. Amazon stock typically follows earnings, and this could boost Amazon stock over the next several years, resulting in impressive gains for investors who buy now.
As with any great stock, becoming part of a millionaire’s portfolio depends on how much you invest and how long you wait. Some stocks can turn into millionaires on their own; if you invested $1,000 in Amazon stock during its IPO, you’d have over $2 million today. I’m not sure it could do it again, but it can outperform the market average and contribute to a diversified portfolio of winning stocks that together can lead to millionaire status.
2. Lemonade: A Powerful Tool for AI Transformation
Lemonade uses AI to power its innovative insurance model. A startup that’s been in business for less than 10 years, it’s already attracted more than 2 million members and counting. It’s reported consistent, strong growth every quarter since going public four years ago. In the first quarter of 2024, premiums in force, which measure average annual total policies, increased 22% year-over-year, and revenues increased 25%.
Lemonade has a key advantage over traditional insurance companies because it is built on a digital infrastructure powered by AI. All of its parts work together instantly, and management touts this connectivity as the primary reason its model will ultimately outperform the competition. Traditional models, which require more human intervention, won’t be able to keep up with Lemonade. However, it is still building its database as it grows rapidly and adds new members and policies, so it will take time to get to that point.
Management provided a recent example where AI tools are already producing significant results. In insurance, the loss adjustment expense ratio (LAE) measures how efficiently an insurer manages overhead. The benchmark for large companies is around 10%, but for Lemonade, the benchmark is 7.6% despite its small size. The company attributes this to its reliance on technology to handle claims, which increases efficiency while improving the customer experience. The company expects this type of impact to show up in more of its performance as it collects more data.
Meanwhile, it’s taking longer than investors would like to see a profit, and Lemonade’s stock is still trading about 90% below its all-time high. True, that was when it was trading at a very low valuation. But now it’s trading at 2.5 times trailing 12-month sales, which is very cheap for a growth stock. It may take some time, but Lemonade could be a standout stock when its algorithms start working with better data and it starts reporting earnings.
A large investment in Lemonade today could turn into a million dollars over many years if Lemonade can turn its business into a profitable one. Consider how small Lemonade is compared to industry leaders like gradual And Allstate.
If Lemonade can grow to the point where it can generate revenue levels on par with its competitors, its stock could generate huge returns and turn early investors into millionaires.
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John Mackey, the former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Jennifer Seibel The Motley Fool has positions in Lemonade. The Motley Fool has positions in and recommends Amazon, Lemonade, and Nvidia. The Motley Fool recommends Progressive. The Motley Fool has Disclosure Policy.
2 AI Stocks That Could Make You a Millionaire Originally posted by The Motley Fool