Artificial Intelligence (AI) in Healthcare: 2 Top Stock Picks


When you think of artificial intelligence (AI), you probably think of the technology companies creating the nuts and bolts that help AI come to life — such as Nvidia‘s chips or Super Micro Computer‘s servers. We’ve already seen growth in these companies’ earnings thanks to sales of their products to customers developing AI projects. They and some of their peers continue to make great investments because growth in the AI market looks like it’s just getting started.

But there’s another way to invest in AI, and in many cases, these future AI winners haven’t yet taken off — so you can pick them up for a bargain today and likely benefit down the road. I’m talking about players in the AI-in-healthcare market — one that, expanding at a 48% compound annual growth rate, is set to reach more than $148 billion by the end of the decade, according to a Markets and Markets report. Nvidia chief executive officer Jensen Huang has even spoken of this market’s potential, saying just this week that AI likely will have the most impact in healthcare.

How can you benefit? By buying shares of healthcare companies that are investing in AI to transform their offerings and streamline their processes. Here are two top stock picks to get in on right now.

Image source: Getty Images.

1. Medtronic

Medtronic (MDT -0.40%) is a medical device giant, selling a vast number of products across the areas of diabetes, cardiovascular, medical surgical, and neuroscience. And the company’s growth opportunities are far from over — it’s won approval for 130 products in key geographies over the past year. All of this has helped Medtronic generally increase revenue and profit over time, and to further boost growth, the company recently took steps to streamline processes and divest slower-growth businesses to focus on high-growth areas.

So, the picture already looks bright. On top of this, Medtronic is taking steps to ensure its leadership in the potentially transformative technology of AI. The company has established an AI center of excellence to cost-effectively speed up the development of AI across its businesses. And Medtronic has won regulatory clearance for five AI products so far, from its GI Genius intelligent endoscopy tool to the MiniMed 780G diabetes management system. In the most recent quarter, Medtronic said it noted “strong adoption” of its AI-driven surgical planning solution for spine surgery.

All of this could be a key driver of growth for Medtronic in the years to come. Many of these tools, such as the surgical planning solution, are helping surgeons improve outcomes — and this may lead to more and more users and significant revenue growth for Medtronic.

Today, Medtronic shares trade for only 16x forward earnings estimates, which looks like an absolute steal for a company set to lead in this billion-dollar growth market.

2. Moderna

You probably know of Moderna (MRNA 1.29%) as the company that launched one of the world’s best-selling healthcare products: the coronavirus vaccine. Moderna brought in billions of dollars in revenue from its vaccine in the earlier stages of the pandemic, and the vaccine could continue to generate significant recurrent revenue in the years to come.

But what you may not know is Moderna is also an AI company. The biotech has been using AI for quite some time — and has made the technology central to the operations of its entire business. Back in 2014, Moderna used machine learning for mRNA design in order to design potential medicines in silico. A couple of years later, the company built an AI algorithm to create personalized neoantigen treatments for patients in clinical trials of the potential product.

More recently, Moderna developed an AI academy to train employees in AI so that the technology could help all departments gain in efficiency and precision. And Moderna has taken other steps to invest in the AI opportunity. The company last year opened a new office in Seattle to scale its use of AI and joined forces with International Business Machines (IBM) to explore quantum computing and generative AI for use in developing mRNA medicines. For example, Moderna is using IBM’s MolFormer to better understand a molecule’s properties — and therefore develop better medicines faster.

All of this should help Moderna speed up the drug development process and become more efficient. This is likely to save time and money — and potentially produce game-changing products. That could help earnings soar over the long run, making Moderna’s valuation today — at 8x forward earnings estimates — look dirt cheap.

Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool recommends International Business Machines, Medtronic, and Moderna. The Motley Fool has a disclosure policy.



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