2 growth stocks that are shaping the future of technology

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Technological innovations tend to raise the bar for human productivity while creating enormous amounts of wealth. For example, the invention of the steam engine propelled the first industrial revolution in the 1700s. And the electrification of industry sparked the second industrial revolution in the 1800s, leading to the widespread adoption of manufacturing. mechanized.

More recently, semiconductors and personal computers gave birth to the third industrial revolution, often referred to as the digital revolution. And today we are living in the Fourth Industrial Revolution, a time characterized by mobile connectivity, artificial intelligence, and (presumably) technologies we can’t even imagine yet.

With that in mind, here are two growth stocks that are shaping the future of tech.

Image source: Getty Images.

1. Lemonade

Lemonade (NYSE: LMND) is a tech company disrupting the insurance industry. While traditional insurers employ actuaries to estimate risks, agents to sell policies, and adjusters to manage claims, Lemonade reduces human inefficiencies with artificial intelligence.

Specifically, its first digital platform uses AI chatbots to engage customers, allowing Lemonade to price policies in just two minutes and pay claims in as little as three seconds. This translates into a pleasant customer experience, while keeping the company’s salary expenses low.

More importantly, Lemonade’s platform was designed to capture much more data than traditional systems. By mixing these signals with artificial intelligence, the company aims to quantify the risks more precisely. In turn, this should keep its loss ratio (i.e. the percentage of premiums paid in claims) below the industry average, allowing Lemonade to undercut its price competitors.

This creates a network effect. As more consumers purchase insurance through Lemonade, the company will collect more data, refining its ability to predict risk. In turn, this should translate into lower prices, making lemonade a more attractive option for all consumers.

Of course, Lemonade hasn’t been around long enough to know if that theoretical advantage actually holds up against industry titans like State Farm. But the first indicators are promising. The company posted a gross loss ratio of 74% in the second quarter of 2021, about eight percentage points lower than the industry average in recent years. And Lemonade has grown its customers and gross margin at an impressive rate.

Metric

Q2 2019 (TTM)

Q2 2021 (TTM)

TCCA

Customers

442 752

1 206 172

65%

Gross profit

$ 5.7 million

$ 26.5 million

116%

Source: Lemonade filings with the SEC. TTM = 12 rolling months. CAGR = compound annual growth rate.

Lemonade recently announced that it will soon be launching an auto insurance product, Lemonade Car. This adds $ 300 billion to its addressable market in the United States, bringing the total to over $ 400 billion. This decision should excite investors. Management estimates that current customers spend $ 1 billion on auto insurance each year, and now Lemonade can provide that service.

Here’s the big picture: Lemonade uses modern tools like big data and artificial intelligence in an innovative framework. In this way, the company is not only shaping the future of the insurance industry, but by exploring new use cases for AI, it is also shaping the future of technology. And if Lemonade can continue to exploit its huge market opportunity, this growth stock could be a very rewarding long-term investment.

2. Square

Traditionally, small and medium-sized enterprises (SMEs) have turned to banks and independent sales organizations for merchant services. But these vendors often require long-term contracts, and they typically bundle hardware and software from different vendors, which can lead to compatibility issues.

In other words, finding a merchant service provider can be difficult, especially for SMBs that lack strong IT teams. This is what makes Square (NYSE: SQ) so convincing. There’s no contract, and its self-service platform offers all the hardware, software, and services that sellers need to run their businesses. This includes solutions for everything from payment processing and employee payroll to marketing and customer retention. In short, Square democratizes commerce.

The company also provides a range of financial tools to consumers. The Cash app combines banking and brokerage services by allowing users to deposit money directly and then send, spend and invest those funds. Consumers can also use the platform to file their taxes. And once Square’s recently announced Afterpay acquisition is complete, the mobile app will become a discovery tool for merchants offering “buy now, pay later” at checkout, better connecting Seller app ecosystems. and Square Cash.

Either way, Square offers a simple and convenient solution to its customers, helping the company capitalize on two major trends: e-commerce and digital payments.

Metric

Q2 2019 (TTM)

Q2 2021 (TTM)

TCCA

Gross profit

$ 1.6 billion

$ 3.7 billion

52%

Free movement of capital

$ 321.7 million

$ 682.8 million

46%

Source. Ycharts. TTM = 12 rolling months. CAGR = compound annual growth rate.

In July, Square acquired the Crew workplace messaging platform for an undisclosed amount. This will strengthen its team management tools, which currently help customers plan employees and track attendance. While this merger is unlikely to move the needle forward on its own, Square’s decision to integrate messaging functionality into its platform positions the company to serve large enterprises.

This is important because Square has already seen increased demand from mid-market sellers (i.e. those who generate more than $ 500,000 in sales each year), mainly due to its custom point of sale software. for retailers and restaurants. In fact, big sellers accounted for 35% of gross payment volume in Q2 2021, up from 26% in Q2 2019. This trend bodes well for Square and its shareholders.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Questioning an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.


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