Quiet AI Stocks Outperforming the Market

Artificial intelligence (AI) has been a dominant force in the stock market since the launch of ChatGPT in late 2022. At that time, the S&P 500 was in a bear market following the post-pandemic hangover and a spike in inflation. However, since then, the broad market index has surged by more than 50%.

While investors are familiar with top-performing AI stocks like Nvidia and Palantir, there are other stocks that have quietly been outperforming the market. Let's take a closer look at two of these under-the-radar performers: Upstart and Lemonade.

Upstart: Revamped Business Model Drives Growth

Upstart (NASDAQ: UPST) experienced a meteoric rise following its initial public offering (IPO) in December 2020, with the stock soaring during the pandemic in 2021. However, the subsequent bear market saw Upstart's stock plunge by 97% as rising interest rates hit its lending business. The company operates as an AI-driven online lending platform, and the stock was largely forgotten by investors. But Upstart has made significant improvements to its business.

By introducing a more advanced AI model, Upstart has improved its conversion rates and expanded into larger lending markets such as home and auto sectors. These strategic moves have quietly propelled the stock, which has surged 175% over the last year. Upstart's market cap stands at just $6 billion, and the company is poised to disrupt a massive market by competing with traditional FICO scores.

In the first quarter, Upstart reported a 67% increase in revenue to $213 million, with originations jumping 89% to $2.1 billion. The company also achieved a 19.1% conversion rate, up from 14% in the same quarter last year. Adjusted EBITDA came in at $43 million, a significant improvement from a loss of $20 million in the same quarter last year. Upstart is on track to achieve profitability on a GAAP basis this year.

Lemonade: Accelerating Growth and Profitability

Lemonade, another AI-driven company, is also making waves in the insurance industry. The company's growth is accelerating, and it is expected to turn profitable by 2027. Lemonade's innovative use of AI and machine learning has allowed it to streamline its operations and offer more personalized insurance solutions.

With a focus on digital transformation, Lemonade has been able to reduce costs and improve customer satisfaction. The company's unique business model, which combines AI with a charitable component, has resonated with consumers and investors alike. As Lemonade continues to scale, its potential for further growth and profitability is significant.

Market Potential and Future Outlook

Both Upstart and Lemonade are positioned to capitalize on the growing demand for AI-driven solutions in their respective industries. The credit and insurance markets are massive, and AI offers a competitive edge in terms of efficiency, accuracy, and customer experience.

Upstart's AI-based lending model has shown superior results compared to traditional FICO scores, and the company is well-positioned to continue its growth trajectory. Lemonade's innovative approach to insurance is also gaining traction, and the company's focus on digital transformation and customer-centric solutions sets it apart in a crowded market.

As these companies continue to execute their strategies, they are likely to outperform the market over the coming years. The ongoing advancements in AI technology and the increasing adoption of AI-driven solutions across various sectors provide a strong foundation for sustained growth and profitability.