2 Artificial Intelligence (AI) Stocks Trading Under $50 That Can Supercharge Your Portfolio

Semiconductor companies have soaked up most of the value created by artificial intelligence (AI) so far. Nvidia, for example, has added a whopping $2.7 trillion to its market capitalization since the beginning of 2023, thanks to its graphics processors (GPUs) for data centers which are designed for developing AI models.

However, Ark Investment Management's founder, Cathie Wood, thinks AI software companies will eventually generate $8 in revenue for every $1 spent on hardware and chips. That spells opportunity for investors with a long-term mindset.

DigitalOcean (NYSE: DOCN) and Lemonade (NYSE: LMND) could be big winners if Wood is right. Shares in both companies are trading at under $50, and here's why they could supercharge your portfolio over the long term.

1. DigitalOcean

DigitalOcean is a provider of cloud computing services, but it focuses specifically on small and mid-sized businesses (SMBs). That differentiates it from industry giants like Amazon and Microsoft, which typically serve large, high-spending enterprises.

DigitalOcean offers everything from data storage to website hosting to complex software development tools, and it combines them with cheap and transparent pricing, a simple dashboard for easy deployment, and highly personalized service to meet the needs of SMBs that don't have in-house technical expertise. Now, the company is taking those features and applying them to its growing portfolio of AI services.

DigitalOcean acquired Paperspace last year, which operates several data centers with a range of GPU options (including Nvidia's flagship H100) aimed at AI developers. Paperspace can be up to 70% cheaper than cloud providers like Microsoft Azure because it offers per-second billing to reduce wastage and no lock-in contracts. Plus, Paperspace has a lean cost structure because of its niche service offering, which keeps prices down.

Last week, DigitalOcean became one of the only cloud providers to start offering fractional GPU capacity. It means businesses can access between one and eight Nvidia H100 GPUs, which will make AI deployment affordable for even the smallest of enterprises. Other cloud providers typically don't operate at such a small scale because they are more focused on large customers which rent thousands of GPUs at a time.

DigitalOcean generated a record $192.5 million in total revenue during the second quarter of 2024 (ended June 30), which was a 13% increase from the year-ago period. However, its revenue attributable to AI soared by an eye-popping 200%. Even though the company didn't disclose exactly how much AI revenue it generated, that growth rate implies an incredible amount of demand for its new services.

DigitalOcean stock is up 18% this year, but it's still trading 66% below its all-time high, which was set during the tech frenzy in 2021. Its price-to-sales (P/S) ratio is currently 5.6, which is 35% below its average of 8.6 since the company came public three years ago. In other words, this could be a great entry point for long-term investors, especially because DigitalOcean is one of the only providers of AI services to SMBs.

2. Lemonade

Let's be honest -- nobody enjoys dealing with insurance companies. The claims process can involve lengthy phone calls and slow payouts, which piles onto an already-stressful time. Lemonade is using AI to overhaul that entire experience, from customer interactions to how premiums are calculated for its renters, homeowners, life, pet, and car insurance products.

It all starts with Maya, an AI chat bot on Lemonade's website, which is capable of writing quotes for potential customers in under 90 seconds. When it's time to make a claim, AI Jim can handle the entire process in less than three minutes without human intervention.

Lemonade had a record 2.1 million customers at the end of the second quarter, and it's having success with younger age cohorts that have historically been underinsured. The tech-focused user experience is likely one reason for that, but so is the company's "Giveback" program, which donates a portion of premiums to charities supporting social causes.

Lemonade also uses AI extensively in the background. Its Lifetime Value (LTV) models help the company predict the likelihood customers will make a claim, switch insurers, and purchase multiple policies, in order to calculate fair premiums. Lemonade constantly rolls out new versions of its LTV models, and each iteration delivers improvements in accuracy and performance.

The company's in-force premium hit a record of $839 million during Q2. That led to $122 million in revenue, which was an increase of 17% from the year-ago period. Lemonade also delivered positive net cash flow (of $4 million) during the quarter, and it expects to remain in positive territory most of the time going forward. Staying profitable on a net-cash-flow basis will allow the company to fuel its growth without needing more money from outside investors.

AI will be a huge tailwind in that regard. Over the past year, Lemonade was able to reduce its headcount (number of employees) by 9% while simultaneously growing its insurance book by 22% because AI is doing so much heavy lifting.

Despite all of Lemonade's success to date, its stock trades at a P/S ratio of just 2.5, which is near the cheapest level in its history as a public company. Its insurance products are currently available in the U.S., the United Kingdom, and three European countries. However, it plans to expand to two dozen more countries across Europe soon, so it might be on the cusp of a fresh wave of growth.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, DigitalOcean, Lemonade, Microsoft, and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.