AI stocks have been heating up over the last few weeks.
The technology is changing the structure of today’s financial institutions as it weakens the connections of traditional systems and creates windows of opportunity for revolutionary advancements.
AI has revolutionized how we conduct businesses by developing systems that think and behave like humans. The use of algorithms to interpret and organize vast amounts of information is impressive.
These are the AI stocks to keep your eye on.
SoFi (NASDAQ:SOFI) operates an innovative fintech business that has been a disruptive player in its niche.
Its product-based approach offers customers various services, from student loan refinancing to mortgages and even wealth management services.
What puts it among AI stocks is that it uses AI to effectively transform the lending process, offering customers lower rates and more savings potential. By leveraging customer data using AI-based technology, SoFi has created a robust underwriting model.
This comprehensive approach gives borrowers more confidence in their applications and demonstrates how the firm wants to increase customer engagement.
The firm wrapped up its third full year of operations, generating a stellar $30 million positive GAAP net income at an impressive 11% margin. Its membership base has grown to 5.2 million, a whopping 21% improvement from the end of 2021. SoFi expects adjusted sales to exceed analyst expectations.
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Lemonade (NYSE:LMND) started off as a renters’ insurance product but has since spread its tentacles into five unique insurance verticals.
Its platform is unique because customer interactions are 100% digital, which removes the need for brokers or middlemen. Moreover, it uses AI to conduct risk assessments, underwriting policies, and other complex processes.
It boasts the highest share of renter’s insurance purchasers below 35, beating the biggest insurance companies. Also, it has a cross-sell ratio of over 30% for its other insurance categories, which carry heftier premiums than renters insurance.
Revenue growth for the firm has been remarkable, at over 258% over the past five years on average. However, the main concern concerns its loss ratios, which have recently grown by double-digit margins.
The recent Metromile deal and the effects of Hurricane Ian slowed down its progress toward profitability in recent quarters. Nevertheless, with pending rate increases, Lemonade can effectively bring its premiums closer to risk and improve its bottom-line situation.
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Roughly $5 trillion in loans are originated each year, and Upstart is in a strong position to make the most out of this market as it builds its vast marketplace.
Upstart is revolutionizing the credit industry. By using sophisticated AI models to identify risk accurately, Upstart can approve more applicants and do so rapidly and reliably. It has partnerships with 150 institutional investors and 83 banks, which continue to grow each quarter.
Despite its success over the years, its recent performances have been deplorable, calling into question its long-term attractiveness. Upstart’s business model works best in a low-risk environment with easy access to funding.
However, the high inflation and interest rate environment at this time has significantly impacted the firm’s top and bottom-line positioning. Layer that up with its poor capital decisions, such as its share repurchasing efforts, which has further added to investor woes.
Over the long term, its business remains attractive once the economic environment starts to improve, but it remains a contrarian play for now.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Muslim Farooque is a keen investor and an optimist at heart. A life-long gamer and tech enthusiast, he has a particular affinity for analyzing technology stocks. Muslim holds a bachelor’s of science degree in applied accounting from Oxford Brookes University.
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