10 Worst Small Cap AI Stocks To Buy According to Short Sellers

1. Lemonade Inc. (NYSE:LMND)

Short % of Shares Outstanding As of August 30: 23.83%

Market Capitalization as of September 14: $1.29 billion

Number of Hedge Fund Holders: 17

Lemonade (NYSE:LMND) is a digital insurance company that uses AI to streamline the insurance process, by offering a variety of insurance products in many countries for homeowners, renters, pets, and term life, to make insurance more accessible, affordable, and transparent. It has over 2 million customers.

In the second quarter of this year, the company made $122 million in revenue, up 16.63% year-over-year. In-force premium grew 22% to $839 million, while customer count increased by 14% to 2.2 million. Premium per customer increased 8% as compared to last year to $387, driven primarily by rate increases.

Despite increased catastrophic event losses, the company’s loss ratio improved to 79%. Lemonade (NYSE:LMND) achieved this by focusing on lower-risk products like pet and renters insurance, expanding to Europe, and strategically placing home insurance. It has launched homeowners insurance in the UK and France and continues to sell in the US where its AI predicts favorable long-term value. It’s also placing some home premiums with third parties in certain regions.

The company is investing heavily in AI-powered automation to streamline operations and improve profitability. It aims to optimize over 100 business processes, with early cost savings expected within 18 months. Its GenAI can handle 30% of customer interactions without human intervention. Lemonade (NYSE:LMND) is planning to expand into auto insurance within the next 18 months as well.

It’s using AI throughout its operations, from customer service to internal processes. The company plans to capitalize on the growing demand for digital, personalized insurance products through AI and is expected to position itself as a leader in the sector.

As we acknowledge the growth potential of Lemonade Inc. (NYSE:LMND), our conviction lies in the belief that AI stocks hold great promise for delivering high returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than NVIDIA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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