The economic downturn has dealt a blow to the stock market in 2022, with the reference S&P500 the index lost 20% of its value and spent most of the year in bearish territory. But there could be good news for investors, as the average bear market only lasts about nine and a half months (dating back to 1929).
Given that the current bear market was official in mid-June 2022, we could be just four months away from the end. This calendar could also be supported by recent inflation data, given that it has cooled in each of the past five months, which should ease some of the current pressure on the economy.
That’s why now may be a good time to buy stocks, especially those in heavily beaten sectors like technology. Consider these interesting statistics: according to McKinsey & Company, artificial intelligence (AI) is expected to add $13 trillion to the global economy by 2030, with 70% of all businesses using it in one way or another. another.
Since stocks of AI companies like Lemonade (LMND 4.52%) and C3.ai (IA 2.44%) are down more than 90% from their all-time highs, here’s why it might be a chance to buy ahead of expected industry growth.
1. Lemonade sets a new standard in insurance
Lemonade is an insurance company that’s using artificial intelligence to shake up the industry, and it’s woven technology into almost everything it does. He uses it to interact with customers through his web bot, Maya, which can write an insurance quote in 90 seconds and pay claims in less than three minutes, without human intervention – a level of convenience that is certainly not not the norm. in the insurance sector.
Lemonade also uses AI to price premiums for customers. Its new Lifetime Value Model 6 (LTV6) determines an appropriate premium based on the likelihood of someone purchasing multiple policies, their likelihood of making a claim, and even the likelihood of them switching to another insurer. In the long run, the company believes this will result in much more accurate pricing.
Lemonade’s 2022 full-year results are not yet known, but in the third quarter (ending Sept. 30), its customer base hit an all-time high of 1.77 million, and their average premiums reached a record $343. . More customers spending more money is usually a winning formula for any business and as a result, Lemonade’s in-force premium increased 76% year-over-year to $609 million.
The company has generated $209 million in revenue over the past four quarters, placing its shares at a price-to-sales ratio of just 4.5. It’s the cheapest level since the company went public in 2020, and it follows a 91% drop in Lemonade shares from their all-time high. Amid the massive tech sell-off, investors have dumped high-growth companies that aren’t yet turning a profit because they’re perceived as risky.
But Lemonade says it can achieve profitability with the cash it already has, so it’s possible the sharp drop in its stock price is overdone. If a new bull market emerges in 2023, Lemonade is the kind of heavily downed name that could stage a powerful rally.
2. C3.ai pioneered enterprise artificial intelligence
You’ve probably heard of software as a service (SaaS), where companies pay recurring fees to access software platforms to run their operations. Well, C3.ai basically offers AI as a service, and it’s a pioneer in this whole new industry. The company sells off-the-shelf, customizable AI applications to companies in nine different industries, so it could be one of the biggest beneficiaries of McKinsey & Company’s lofty financial forecast for the rest of this decade .
C3.ai is especially useful for companies that don’t have the expertise or resources to build AI models from scratch. Take the oil and gas giants, for example; these aren’t usually the kind of organizations you associate with advanced technologies like AI, but the fossil fuel industry is C3.ai’s biggest source of income. Companies in this sector are using AI to help predict catastrophic equipment failures and even produce lower carbon emissions.
C3.ai also co-sells its applications with the world’s largest cloud service providers, including Amazon web-services, Microsoft Azure, and Alphabetis Google Cloud. By integrating C3.ai’s technology, these cloud providers can help customers accelerate their adoption of artificial intelligence and grow their businesses faster.
In the second quarter of its fiscal year 2023 (ended Oct. 31), C3.ai’s revenue growth was just 7% year-over-year as the company shifts from subscription-based billing consumption-based billing (pay-as-you-go). ) invoicing. In the long term, as customers increase their usage, C3.ai expects this shift to drive explosive growth despite short-term headwinds.
C3.ai stock is down 93% from its all-time high, and after deducting $840 million in cash, cash equivalents and short-term investments from its balance sheet, the market currently values the company at just $390 million. of dollars. And the stock is trading at a price-to-sales ratio of 4.5, the cheapest level in C3.ai’s history as a public company.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. Suzanne Frey, an executive at Alphabet, is a board member of The Motley Fool. Anthony Di Pizio has no position in the stocks mentioned. The Motley Fool holds positions and recommends Alphabet, Amazon.com, Lemonade and Microsoft. The Motley Fool recommends C3.ai. The Motley Fool has a disclosure policy.