Without a doubt, 2024 was the year of artificial intelligence (AI), but 2025 could be even better. Companies and individuals are still figuring out how to harness the power of AI, and since these systems make heavy use of machine learning, they are always improving.
Investors have been betting on big AI companies, particularly those that provide the hardware behind it. Those who owned giants like NVIDIA and Broadcom In 2024 it enjoyed massive gains: 177% and 119%, respectively for those two stocks.
But many smaller companies that are using AI technology to better provide traditional services appear positioned for growth in 2025. Upstart Holdings(NASDAQ: UPST), Lemonade(NYSE: LMND)and revolution group(NYSE: RVLV). Each of these companies is changing the way business is done in a specific industry and their shares could soar this year.
Upstart was one of the stock market’s biggest winners in 2021, gaining 271% that year. It went public in 2020 and shares soared on the back of massive revenue growth, which included a quarter with a four-digit percentage increase.
The company operates an artificial intelligence-powered credit assessment platform that it says approves more loans than traditional processes, but with less risk for lenders. That’s a powerful idea. However, things went south quite quickly for Upstart, as the young company was poorly managed during the subsequent period of high inflation and rising interest rates. With fewer people taking out loans, their income plummeted and profits turned into losses.
Now he is starting to recover. It’s adding lending partners and launching new products, and is poised to benefit as consumer interest rates fall again. Management expects revenue to increase year-over-year in the fourth quarter, and Wall Street expects positive net income in 2025.
As expected, Wall Street is divided on this stock. Among analysts covering the company, 33% rate the stock as a sell, while 28% say it is a buy. In line with its volatile history, its price targets for the stock over the next 12 to 18 months range from a 40% gain to an 82% loss. Given the uncertainties around the company’s prospects, Upstart stock is a suitable holding only for very risk-tolerant investors, but could be a winner this year.
Insurance company Lemonade uses artificial intelligence and machine learning in an effort to price its policies more effectively than traditional insurers, while also using technology across its business to accelerate and improve the customer experience. All of its technological parts connect to create a well-oiled machine.
However, this did not immediately translate into good business results. As a young growing company, it has been reporting huge losses and its loss ratio has also been high; In other words, it has been paying too high a proportion of its premium income on claims, which is bad for the bottom line. . But it is beginning to recover from high losses and disappointing loss rates.
Revenue growth has been rapid throughout its short history and it continues to add customers and policies at a steady pace. It has expanded its offerings to include a full line of insurance products, with policies for nearly all consumer needs outside of healthcare. Customers are attracted to its low prices and the ease of use of the platform.
Management has insisted from the beginning that Lemonade has a better system that would prove effective over time, and its results have noticeably improved in recent quarters. In the third quarter of 2024, its loss ratio fell to 73% (from 83% in the prior-year period).
However, Wall Street expects it to continue posting losses for the foreseeable future; It may take a few years before you report positive net income. However, Lemonade stock gained 144% in 2024, and if it continues to reduce its loss rate, it could crush the market again in 2025.
Revolve’s share price doubled this year as the company began to turn around. The online-only retailer sells clothing and related products on its AI-powered website, and its social media-focused business is earning the loyalty of a wide cross-section of shoppers.
The company struggled during the high inflation years of 2022 and 2023, when its customers were tightening their belts. But since then it has taken a turn. Revenue increased 10% year over year in the third quarter of 2024 and net income increased 238%. Its trailing 12-month active customer count is up 5% year-over-year, the total number of orders placed is up 3%, and average order value is up 1%.
These “softer” metrics tell a fuller story about how Revolve’s offerings are resonating with its core customers and why it has so many opportunities. Revolve is the future of fashion and its business is growing again. If it maintains or even accelerates revenue while generating profits and generating more cash, it could be a top stock again in 2025.
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Jennifer Saibil has positions at Lemonade. The Motley Fool has posts and recommends Lemonade, Nvidia, Revolve Group, and Upstart. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.
Three Artificial Intelligence (AI) Stocks That Could Crush the Market in 2025 was originally published by The Motley Fool
