Key Points

• Lemonade is growing fast, adding thousands of new customers and reporting accelerating growth.

• Its loss ratio is declining, but it's still reporting net losses.

• Management believes it has an edge over legacy insurers due to its digital technology.

Lemonade (NYSE: LMND) has experienced explosive growth since going public, and its stock is climbing, up more than 160% during the past year. The insurance technology company has made some serious progress, although there are still risks. Let's see where it might be five years from now and whether it's a good time to buy Lemonade stock.

Where Lemonade is now

Lemonade is 10 years old as of July, and it's been quite a decade. The company uses artificial intelligence (AI) to disrupt traditional insurance and offer a better product for policy holders. It was built using digital processes and AI throughout its business, including having chatbots onboard customers and assess claims. That may not sound so impressive today, as AI becomes the norm for many companies, but Lemonade has been doing this for years. It relies on data, machine learning, and continually improving algorithms to get things right, cutting out human intervention and lots of headaches and hassle for the average policyholder.

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Image source: Getty Images.

This is proving to be a popular alternative, and Lemonade is attracting customers at a rapid pace. It had more than 2.5 million customers as of the end of the 2025 first quarter, a 21% year-over-year increase. The premium per customer is also increasing, up 4% year over year in Q1 to $396. Together, that's leading to increased in-force premium (IFP), Lemonade's preferred top-line metric. It surpassed $1 billion in Q1 for the first time, up 27% from last year. Lemonade has been reporting strong growth since it went public, but it has accelerated the past six quarters.

As with many young companies, Lemonade isn't profitable. As an insurance company, it measures its progress and success with metrics beyond revenue and net income. One of the most crucial profitability metrics for an insurance company is the loss ratio, or how much it collects in premiums versus paying policy claims, and Lemonade has been struggling here. Recently, however, it looks like it's going in the right direction, which is down. The Q1 loss ratio was 78%, down one percentage point from last year, and the trailing-12-month loss ratio was 73%, in line with 2024's Q4 and below the company's short-term target of 75%. All good there.

This incredible performance has been lightening the market's mood about the continued net losses. The net loss was $62 million in Q1, worse than $47 million a year earlier.

Building for the future

Buying into Lemonade's thesis and stock is really a bet on its ability to disrupt traditional insurance. Chief Executive Officer Dan Schreiber sees that as a given and that it will happen, and it's just a matter of time before Lemonade's business outperforms its legacy competitors.

Schreiber notes that, although it's perceived that all insurance companies are using AI today, that's not actually the case. Many of the large, traditional giants are taking a wait-and-see approach, and it's not so simple to switch over all of their systems to the kind of digital substrate where all parts connect and communicate that Lemonade has. Those companies still heavily rely on outside sales agents, who bring in 62% of all property and casualty premiums, giving Lemonade a leg up in this game.

Schreiber thinks that the company's AI technology will be even more potent in the next five to 10 years, and he explains that

before the decade is out, those that are moving at the pace of AI will find that the same $1 million that buys one squad's worth of engineering firepower in 2025 will deliver the equivalent of 90,000 engineers in 2030.

Lemonade is well positioned to jump ahead of the competition as that happens. It will also help it on its journey to profitability. Many companies are already restructuring their workforces as they get more done with AI.

Today, Lemonade is still in scale mode, spending a lot on marketing to grab more customers. The expectation is that eventually, the revenue from these customers will be more than the money the company is spending on getting them. Its other operational costs have remained constant due to its reliance on AI systems, and because this is insurance, each new customer has lifetime value as they renew their policies, so long as Lemonade can impress them and keep them.

Is now the time to buy?

Management expects to report positive adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) by the end of 2026. That would be a milestone, but Wall Street is still expecting a net loss of $1.97 per share next year. Management is shooting for positive net income by the end of 2027 and beyond.

If that's the way things go, shareholders are in for a treat. Even if there are hiccups along the way, it does look like five years from now, Lemonade will be bigger and profitable, and its stock should reflect that.

Should you invest $1,000 in Lemonade right now?

Before you buy stock in Lemonade, consider this:

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Jennifer Saibil has positions in Lemonade. The Motley Fool has positions in and recommends Lemonade. The Motley Fool has a disclosure policy.

The rapid growth of artificial intelligence (AI) has already had a massive impact on the stock market. Many AI companies have seen their valuations skyrocket. And according to recent research, this is just the beginning.

A report released by UN Trade and Development (UNCTAD) earlier this year projects that the global AI market will grow from $189 billion in 2023 to $4.8 trillion by 2033. Given that growth, there's a strong possibility that quality AI stocks will outperform the market over the next five to 10 years.

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Here are two that could be poised for explosive growth.

Image source: Getty Images.

1. Applied Digital

Applied Digital (NASDAQ: APLD) builds and buys data centers where companies can rent space and install their own servers. When it started out, Applied Digital catered to blockchain companies, but it later switched its focus to the high-performance computing (HPC) and AI industries.

It's a straightforward business model, although Applied Digital did take a stab at offering AI cloud services through a subsidiary it launched in 2023, Sai Computing. Earlier this year, it announced plans to close that chapter by selling its cloud segment and transforming itself into a real estate investment trust (REIT).

Getting back to what it does best could be a positive move for Applied Digital. Its data center hosting business is now in the black, with a profit of $8.8 million in its fiscal 2025 third quarter, which ended on Feb. 28. The cloud services business isn't. It booked a loss of $10.3 million in the quarter, despite being the faster-growing segment.

On the data center front, Applied Digital announced two lease agreements with AI hyperscaler Coreweave on June 2. The agreements will last approximately 15 years and are expected to generate about $7 billion in revenue. Applied Digital stock has been soaring since then -- it's up 51% since the start of June.

The top tech companies are spending heavily on data centers and AI infrastructure. Applied Digital is well-positioned to capitalize on that spending, especially as it transitions to a REIT model and focuses on its data center business.

2. Lemonade

At first glance, Lemonade (NYSE: LMND) might not seem like an AI stock. It's an insurance company offering renters, homeowners, car, pet, and term life policies. But Lemonade has made AI a key part of its business since it launched in 2015.

It uses AI at every stage of its processes. New customers can quickly get quotes on policies through the company's AI chatbot, Maya. It uses AI during the underwriting process to calculate people's premiums and to assign a lifetime value (LTV) to each customer based on their likelihood of filing a claim, switching insurance providers, or bundling multiple insurance products.

The claims process also has built-in AI, allowing Lemonade to fully automate about 55% of its claims, according to Chief Claims Officer Sean Burgess. In addition, Burgess says that Lemonade handles over 40% of customer service tickets with AI.

Lemonade isn't profitable yet, but it beat expectations in its most recent quarter. Revenue rose 27% year over year to $151.2 million in the first quarter. Its in-force premium (IFP), which is the total premium value across all active policies, also increased by 27% to $1.0 billion.

That made it the sixth consecutive quarter where Lemonade's IFP has grown, and management has set an ambitious goal of growing its IFP to $10 billion in the coming years. In another good sign, its gross loss ratio -- the share of its premiums that get paid out as out claims -- is declining. It went from 88% in the third quarter of 2023 to 73% in the first quarter of 2025.

While investing in young businesses that are losing money can be risky, it also gives you an opportunity to get in on the ground floor. I think that's where we're at with Lemonade. This company's high-tech business model has been great for attracting customers, particularly younger customers -- 70% of its customer base is under 35. Based on Lemonade's financial growth and embrace of AI technology, it could be poised to take off.

Should you invest $1,000 in Applied Digital right now?

Before you buy stock in Applied Digital, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Applied Digital wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $676,023!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $883,692!*

Now, it’s worth noting Stock Advisor’s total average return is 793% — a market-crushing outperformance compared to 173% for the S&P 500. Don’t miss out on the latest top 10 list, available when you join Stock Advisor.

See the 10 stocks »

*Stock Advisor returns as of June 23, 2025

Lyle Daly has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Lemonade. The Motley Fool has a disclosure policy.