Healthcare to swim along as AI rally broadens

May 17, 202417:18 UTC

Key points:

Main U.S. indexes mixed, little changed
Energy leads S&P 500 sector gainers; Tech weakest group
Dollar ~flat; crude up; gold up >1%; bitcoin up >2%
U.S. 10-Year Treasury yield rises to ~4.42%

HEALTHCARE TO SWIM ALONG AS AI RALLY BROADENS

Defensive-minded investors who are looking to potentially rev up their portfolios might be in luck as artificial Intelligence (AI), the buzz-word that sent stocks across the globe soaring since 2023, makes further headway into the healthcare sector.

After reviewing medical journals and over 500 corporate presentations Morgan Stanley believes AI and machine-learning (ML) integration in biopharma could boost discovery and make clinical development of drugs more efficient.

Firms that are exploring various approaches include Recursion RXRX, Schrodinger SDGR, Exscientia EXAI and Google DeepMind.

Earlier in the week, Recursion announced the completion of Nvidia-powered NVDA supercomputer BioHive-2, which the biotech firm says is the largest supercomputer in the industry.

Late last week, Cathie Wood-led ARK Invest also lapped up shares in Recursion following better-than-expected first quarter results, as per LSEG data.

In terms of forward price-to-earnings valuation, Recursion, Schrodinger and Exscientia are trading near to their respective industry medians or at a discount, according to LSEG data.

Another subsector that can benefit is medical technology, where companies manufacture AI and ML integrated devices that help detect the early onset cancer and major lung diseases, while firms exploring the prospects of AI-enabled robotic surgery are also expected to benefit.

Businesses that are exploring the broadening use of AI in med-tech include iRhythm IRTC that makes heart monitors, hearing aid manufacturer Demant DEMANT and GE HealthCare GEHC that is involved in the making of imaging devices.

Morgan Stanley also adds that firms in the line of healthcare services such as front line care, diagnostics, telepharamacy operations and health-insurance can help narrow costs and boost profitability on utilizing AI to help automate workflows.

As the first-quarter earnings season teeters to a close, healthcare firms that are part of the benchmark S&P 500 SPX outperformed the broader market, and the integration of artificial intelligence and machine learning in the sector could further propel profitability.