Artificial Intelligence (AI) is a hot trend in the market today. While there is certainly some hype associated with it, AI seems to have some lasting power and is poised to make a real impact on the economy. People and companies are using AI to harness and create all kinds of transformative applications. Photo imaging that has never been done before and data analysis at unheard of speeds are just two examples.
Businesses are harnessing the power of AI to run better and faster, and many of them are disrupting the status quo and capturing market share. Some of these companies are established winners using their strong assets to lead the charge, and others are small innovators disrupting the norm in specific segments of the economy.
Let's look at an example from each category — Amazon (NASDAQ: AMZN ) And Lemonade (NYSE: LMND) — and see why each can help you build a millionaire-making portfolio.
1. Amazon: Ahead with Generative AI
Amazon has a long history of investing heavily in AI and is now focusing its attention and resources on incorporating and expanding generative AI. It uses AI in many of its businesses, but one of its most exciting opportunities for AI involves Amazon Web Services (AWS), its cloud computing segment.
Those who know Amazon primarily as an e-commerce giant may not realize that it is also the world's leading cloud computing company. It is a $100 billion run rate business and has a 31% share of the global market. Amazon has developed a competitive set of generative AI tools for AWS customers that simplify access and create incredible opportunities. It has an assortment of services in three tiers to cater to different needs.
The base layer is for developers to build their own large language models (LLMs), which are the key foundation of generative AI. These are models that have been trained on enough data that they can generate, or start generating, without intervention. That's what OpenAI's ChatGPT is known for, and that's where it comes from. NvidiaThe chips come. They're powerful enough to handle the data loads necessary to do the job, and they're a key reason why Nvidia's sales and stock have exploded over the past two years.
The next tier is for developers to use Amazon's LLMs to create AI for specific businesses, and the top tier includes turnkey solutions for businesses that don't need customized services. An example is a tool that creates page descriptions for products on Amazon stores when a user enters a URL.
AWS accounts for about 17% of Amazon's total sales but 61% of operating income. As AWS becomes a bigger part of the whole, profits can increase. Amazon stock typically follows dividends, and this could supercharge Amazon stock over the next several years, making incredible gains for investors who buy now.
As with any great stock, becoming part of a millionaire-making portfolio depends on how much you invest and how long you wait. Some stocks can turn into millions on their own. If you invested $1,000 in Amazon stock in its initial public offering, you'd have more than $2 million today. I'm not sure it can do it again, but it can outperform the market average and contribute to a diversified portfolio of winning stocks that can combine to become millionaires. Is.
2. Lemonade: A great AI disruptor
Lemonade uses AI to power its innovative insurance model. It's a young company that's been around for less than 10 years, and has already attracted over 2 million members and counting. It has reported steady and strong growth every quarter since going public four years ago. In the first quarter of 2024, in-force premiums, which measure average annual total policies, rose 22% year-over-year, and revenue grew 25%.
Lemonade has a significant advantage over legacy insurers because it was built on a digital AI-powered infrastructure. All its parts work together instantly, and management cites this connectivity as the main reason its model will ultimately outperform the competition. Traditional models, which require more human intervention, will not be able to sustain the lemonade. However, it is still building its database as it grows rapidly and adds new members and policies, so it is taking time to get to this point.
Management gave a recent example where AI mechanisms are already producing significant results. In insurance, the loss adjustment expense (LAE) ratio measures how effectively an insurer manages overhead costs. The standard for large companies is around 10%, but Lemonade's is 7.6% despite its small size. That's because the company relies on technology to handle claims, which increases efficiency while improving the customer experience. It expects such effects to show up in its higher performance as it collects more data.
Meanwhile, it's taking longer than that for investors to turn a profit, and Lemonade stock is still trading about 90% below its all-time highs. Well, that was when it was trading at a nosebleed price. But it's now trading at 2.5 times trailing 12-month sales, which is cheap for a growth stock. It may take some time, but Lemonade could be a standout stock once its algorithms catch up with better data and it starts reporting profits.
A fairly large investment in Lemonade today can turn into $1 million over several years if Lemonade can make its business profitable. Consider how small Lemonade compares to industry leaders. Progressive And All State.
If Lemonade can grow to the point where it's generating revenue levels on par with its competitors, its stock could provide serious dividends and shareholders that make it an early millionaire.
Should you invest $1,000 in Amazon right now?
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John Mackey, former CEO of Whole Foods Market, is a member of the board of directors of The Motley Fool, an Amazon subsidiary. Jennifer Seibel poses in Lemonade. The Motley Fool has positions and recommends Amazon, Lemonade, and Nvidia. The Motley Fool recommends Progressive. The Motley Fool has a Disclosure Policy.
2 Artificial Intelligence Stocks That Can Make You a Millionaire was originally published by The Motley Fool.