The S&P 500 had a dream run in the first half of this year, surging 15% with almost no volatility. But it has declined by 5.7% since peaking in July as investors digest weak economic data combined with a currency shock in the Japanese yen.
History suggests the S&P 500 always climbs to new highs given enough time, so this correction is likely a buying opportunity. In fact, this might be a great chance for investors to buy artificial intelligence (AI) stocks at a discount, ahead of what could be significant long-term growth.
According to many Wall Street forecasts, AI could add trillions of dollars to the global economy in the coming decade, with contributions from both hardware and software companies. Here's why investors with $1,000 to spare might want to split it equally between shares of Advanced Micro Devices(NASDAQ: AMD) and Lemonade (NYSE: LMND) right now.
1. Advanced Micro Devices
AMD has emerged as a worthy competitor to Nvidia in the market for AI data center chips. Its new MI300X graphics processing unit (GPU) is already a hit among some of the world's largest data center operators like Microsoft and Oracle, and many customers are finding performance and cost advantages over Nvidia's industry-leading H100.
But with Nvidia about to launch its next-generation GPUs built on its new Blackwell architecture -- which could be up to 5 times faster than its H100 -- AMD can't afford to stand still. That's why it plans to launch the MI350 next year, and it will be based on a new architecture called Compute DNA (CDNA) 4, which could deliver 35 times more performance than CDNA 3 chips like the MI300. AMD hopes this generation of GPUs will compete directly with Nvidia's Blackwell GPUs.
But AI is now coming to personal computers and devices, which means AI will be processed on-device rather than relying on data centers to handle each query. That will create a faster user experience when engaging with AI chatbots and other software. AMD just released the Ryzen AI 300 series for notebooks, which is the fastest neural processing unit (NPU) in the industry. The company says more than 100 platforms will launch with these chips in the coming quarters, from leading computer manufacturers like HP, Asus, Acer, and more.
Earlier this year, AMD said it had a 90% share in the market for AI-enabled personal computers, and the Ryzen AI 300 series could extend that dominance.
During the recent second quarter of 2024 (ended June 30), AMD's data center revenue surged 115% from a year ago to a record $2.8 billion, which included $1 billion in MI300 sales. The company's client segment, which is home to its Ryzen AI chips, generated $1.5 billion in revenue, which was a 49% increase.
That strength is likely to persist for the foreseeable future. In fact, AMD just increased its full-year forecast for GPU sales to $4.5 billion (from $4 billion just three months ago). With AMD stock down 35% from its all-time high, investors are presented with a golden buying opportunity ahead of what could be a substantial long-term growth phase.
2. Lemonade
Lemonade is an insurance company using AI to shake up the renters, homeowners, life, pet, and car insurance markets. The company is valued at just $1.1 billion, so it's a minnow compared to its entrenched competitors like Allstate, which is worth $45 billion, or Geico, which is owned by the $922 billion Berkshire Hathaway conglomerate.
With that said, Lemonade is making inroads. It had over 2.1 million customers as of the second quarter of 2024 (ended June 30), and it's successfully attracting younger cohorts, which have historically been underinsured. Its tech-based approach and its commitment to charitable giving through its "Giveback" program are two reasons for its success.
Lemonade relies on AI chatbots to handle most customer interactions. Its Maya chatbot can write a quote for a potential customer in under 90 seconds, and AI Jim can pay claims in just three minutes without human intervention. With traditional insurers, the claims process can involve several phone calls and slow payouts -- considering younger Americans hate talking on the phone, it's no surprise they are flocking to Lemonade.
Lemonade also uses AI internally to calculate premiums to ensure customers get the fairest possible price. It even uses AI to detect underperforming products and geographic markets, so management can quickly adjust its marketing spending. It's driving a wave of efficiency that allowed the company to shrink its workforce by 9% over the past year, while simultaneously growing its insurance book by 22%.
Lemonade had a record $838.8 million in in-force premium at the end of Q2, with the average premium per customer also hitting a new record of $387. At the same time, its gross loss ratio (the portion of premiums paid out as claims) continued to fall, coming in at 79%. Lemonade says 75% is the sweet spot for a thriving insurance business, and it's almost there.
Lemonade stock is down 90% from its all-time high, which was set during the tech frenzy of 2021. It was unquestionably overvalued back then, but its recent weakness is due to the company's persistent losses at the bottom line. However, it managed to deliver positive net cash flow for the first time ever in Q2, and management believes it can maintain that consistently. It means Lemonade won't have to tap investors (or banks) for further funding anytime soon.
Thanks to the steep dip, Lemonade stock is now trading at a price-to-sales ratio of just 2.2, which is near the cheapest level since the company came public four years ago.
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Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Berkshire Hathaway, HP, Lemonade, Microsoft, Nvidia, and Oracle. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
