Should Investors Buy These 2 Beaten-Down AI Healthcare Stocks?

In the fast-paced world of healthcare, artificial intelligence (AI) is revolutionizing the way we approach disease prevention, diagnosis, and treatment. Companies like recursion Pharmaceuticals and teladoc health are at the forefront of this transformation, leveraging AI to drive innovation and efficiency. But with their stocks lagging the market, should investors consider buying these beaten-down AI healthcare stocks? Let's dive in and find out.

The AI Revolution in Healthcare

AI is changing the game in healthcare. From drug discovery to patient monitoring, AI is helping uncover patterns and insights that humans are incapable of finding. This technology has the potential to prevent disease, detect and diagnose conditions, perform procedures, monitor patients, design and prescribe drugs, and conduct a range of other healthcare tasks. The rise of AI in healthcare has created opportunities to optimize the way healthcare professionals operate, making it a hotbed for investment.

Recursion Pharmaceuticals: Speeding Up Drug Discovery

Recursion Pharmaceuticals is using AI to revolutionize the drug discovery and development process. The company's AI-based operating system (OS) tests compounds against a vast library of human genes to identify the most promising candidates for clinical studies. This approach has several key advantages:

- Speed and Efficiency: Recursion has shown promising early results and has spent far less time and money than the industry average to get its current pipeline candidates from the early stages of discovery to human clinical trials. This efficiency could lead to faster drug launches, longer commercial patent life, higher sales, and potentially lower prices for consumers.
- Partnerships: Recursion has partnered with several pharmaceutical giants, including Roche Holding and Bayer, to develop medicines. These collaborations could provide additional funding and validation for Recursion's AI-driven methods.
- Pipeline: Recursion currently has over half a dozen programs in studies, indicating a robust pipeline of potential treatments.

However, Recursion faces significant risks, including clinical and regulatory setbacks, competition from other AI-powered drug discovery methods, and the challenge of licensing its OS. Despite these risks, Recursion's AI-driven approach offers a competitive advantage in terms of speed and efficiency in drug development.



Teladoc Health: Enhancing Telemedicine with AI

Teladoc Health is a telemedicine specialist that has integrated AI into its business model to enhance patient outcomes and operational efficiency. Some of the AI-driven initiatives include:

- Chronic Health Management: Teladoc uses AI models to predict patients with type 2 diabetes at risk of uncontrolled outcomes and sends personalized email recommendations to improve outcomes.
- Virtual Sitter Solution: This AI-based solution for hospitals detects patient movements that put them at risk of falling, a serious problem in many facilities.
- International Expansion: Teladoc's push into international markets, where its top line is growing faster, could continue to make an impact. In 2024, revenue declined by 1% year over year to $2.6 billion, but international sales grew by 12% to $409 million.

Teladoc's AI initiatives aim to boost internal efficiency and productivity, improve patient outcomes, and expand its market reach. However, Teladoc faces challenges such as stiff competition, persistent net losses, and the need to reduce marketing expenses.

Comparing with Other Leading AI Healthcare Companies

Other leading AI healthcare companies, such as Exscientia PLC, Certara Inc., and Relay Therapeutics Inc., also leverage AI for drug discovery and development. For example:

- Exscientia PLC: This company has a sophisticated AI-enabled drug discovery program that aims to reduce the cost and timeframe of new drug development. Exscientia dosed the first patient in its lead program EXS21546, an AI-designed cancer treatment, in May.
- Certara Inc.: Certara specializes in biosimulation, using software to model and conduct clinical trials to improve the drug discovery process. The company acquired AI health care and deep learning software company Vyasa Analytics LLC in January.
- Relay Therapeutics Inc.: Relay acquired ZebiAI, an AI technology company that applies machine learning to DNA-coded libraries to identify small molecules that bind to a protein. The company's medium-term outlook is tied to its two clinical-stage cancer treatments, RLY-4008 and RLY-2608.

The Risks and Rewards

Investing in AI healthcare stocks comes with both risks and rewards. On one hand, the potential for groundbreaking innovations and significant returns is immense. On the other hand, the sector is fraught with uncertainties, including clinical and regulatory setbacks, competition, and the need for substantial R&D investments.



Should Investors Buy These Beaten-Down AI Healthcare Stocks?

Given the potential for AI to revolutionize healthcare, investing in companies like Recursion Pharmaceuticals and Teladoc Health could be a smart move. However, investors should be aware of the risks and conduct thorough due diligence before making any investment decisions. The AI healthcare sector is still in its early stages, and there is significant potential for growth and innovation. But with great potential comes great risk, and investors should be prepared for the challenges that lie ahead.

In conclusion, while Recursion Pharmaceuticals and Teladoc Health offer unique competitive advantages through their AI-driven innovations, they also face significant challenges and risks. Their approaches differ from those of other leading AI healthcare companies, each focusing on different aspects of the healthcare sector to drive innovation and efficiency. Investors should weigh the potential rewards against the risks and make informed decisions based on their investment goals and risk tolerance.

Ask Aime: Should investors buy Recursion Pharmaceuticals and Teladoc Health stocks?