The artificial intelligence (AI) revolution started gathering momentum in early 2023, with the surging adoption of OpenAI’s ChatGPT application. However, some companies were successfully monetizing AI long before the popularity of chatbots.
Lemonade (NYSE: LMND) has used this revolutionary technology to disrupt the insurance industry since 2015. It only operates in five markets (homeowners, renters, life, pet, and car insurance), but it has attracted more than 3 million customers, and its in-force premium (IFP), which is the value of the premiums from all active policies, is growing at an accelerating pace.
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Lemonade stock soared by 94% last year, but it’s off to a bumpy start to 2026 with a 20% decline so far. Here’s why investors might want to buy the dip right now.
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AI is transforming insurance
The journey of a prospective Lemonade customer starts with an AI chatbot named Maya, which can write a quote in less than 90 seconds via the company’s website. When it’s time for an existing policyholder to make a claim, another AI assistant named Jim can pay them out in as little as three seconds with no human intervention.
That is very different to the claims process with traditional insurers, which often involves lengthy phone calls and a long wait to get paid, so it’s no surprise Lemonade’s customer base grew by 23% during the first quarter of 2026, surpassing 3.1 million policyholders.
Lemonade also uses AI behind the scenes to calculate risk, price premiums, and even run its general operations. This high degree of automation breeds efficiency — in fact, the company’s IFP has doubled to $1.3 billion since the end of 2022, even though its workforce shrank by 6% over the same period.
Lemonade says it now has about $1 million in IFP per employee, placing it on par with competitors like Progressive, Allstate, and Berkshire Hathaway’s GEICO Insurance. But Lemonade is a fraction of the size of those giants, so it could leapfrog them as its business scales. In fact, management believes the company will lead the entire industry in terms of IFP per employee in the future.
Lemonade’s revenue soared in the first quarter
Lemonade ended the first quarter with a gross loss ratio of 62%, which represents the proportion of premiums paid out as claims. In the past, the company said 75% (or lower) is the key to running a thriving insurance business, so it’s well ahead of that mark right now. When the gross loss ratio falls while IFP grows at the same time, the net result is more money for Lemonade at the top and bottom lines.
Story Continues
That helps explain why the company’s first-quarter revenue soared by 71% year over year to $258 million. The result comfortably topped the company’s forecasted range of $246 million to $251 million, prompting management to slightly increase its full-year forecast for 2026. Lemonade now expects to generate $1.2 billion in revenue for the year, compared to the previous forecast of $1.19 billion (at the midpoint of the respective ranges).
Lemonade’s bottom line also significantly improved in the first quarter. The company still had a net lost of $35.8 million on a generally accepted accounting principles (GAAP) basis, but that was significantly less than its year-ago net loss of $62.4 million. Lemonade is investing aggressively in customer acquisition, which is why its IFP growth has accelerated for 10 straight quarters, and the net losses are a consequence of this strategy. But the company can rein in operating costs in the future when its business achieves scale, which should result in significant profit.
Lemonade stock looks attractive after the recent dip
Lemonade stock is trading at a price-to-sales (P/S) ratio of 5.8 as I write this, which is down by half from last year’s peak of 11.6. It’s now close to its three-year average of 5.2, so you could make the argument that the stock is near fair value right now.
However, based on management’s 2026 revenue forecast of $1.2 billion, the stock is trading at a forward P/S ratio of 3.6. And if we look ahead even further, Wall Street thinks the company could deliver $1.6 billion in revenue during 2027 (according to Yahoo! Finance), giving its stock a forward P/S ratio of 2.7.
LMND PS Ratio data by YCharts
That suggests Lemonade stock would have to almost double by the end of 2027 just to trade in line with its three-year average P/S ratio of 5.2. But investors who are willing to hold the stock for the longer term could do even better, because management has outlined a plan to increase the company’s IFP to $10 billion during the next decade or so. That would be a 670% gain from its first-quarter IFP of $1.3 billion, which might translate into a similar gain for the stock.
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Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway, Lemonade, and Progressive. The Motley Fool has a disclosure policy.
This Artificial Intelligence (AI) Stock Is Down 20% in 2026, but Here’s Why It’s a Screaming Buy Right Now was originally published by The Motley Fool
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