Investments in the global healthcare industry have ramped up sharply since the COVID-19 pandemic. With the advent of artificial intelligence (AI), the industry witnessed a rapid transformation in early disease detection, genomic research, drug discovery, clinical processes, and treatment efficacy prediction.
According to a 2023 PwC report, the AI market in healthcare was valued at $11 billion and is expected to grow to $188 billion by 2030. On January 21st, Oracle Co-founder Larry Ellison said during a White House speech that AI plays an integral role in early cancer detection and vaccine development. He highlighted how AI could help detect tiny tumor fragments and assist in gene-sequencing malignancies for the development of mRNA vaccines at a rapid speed for customized cancer treatment options.
Furthermore, AI is speeding up accurate decision-making by aligning big health data with pattern recognition systems, improving patient outcomes by ensuring timely clinical intervention.
During a fireside chat at the annual J.P. Morgan Healthcare Conference on January 13th, Mayo Clinic chief administrative officer Christina Zorn shared how the company addresses potential future healthcare worker shortages and improves cancer care by leveraging AI in robotics and pathology database management.
“We’re going to use, essentially, the robots to be a member of the healthcare team in the healthcare spaces,” she said. “We saw a paradigm shift in healthcare. You’re either going to disrupt from within, or you’re going to be disrupted,” she said.
The significant growth potential in the evolving AI healthcare industry is driving investor interest in the sector as drug discovery and development companies continue to announce new-gen breakthroughs.
For this article, we selected AI stocks by reviewing news articles, stock analysis, and press releases. We listed the stocks in ascending order of their hedge fund sentiment taken from Insider Monkey’s database of 900 hedge funds.
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A robotic arm picking up a product assembly line, displaying the company’s consumer healthcare and wellness offerings.
10. Absci Corporation (NASDAQ:ABSI)
Number of Hedge Fund Holders: 20
Absci Corporation (NASDAQ:ABSI) is a drug discovery company that utilizes generative AI, reverse immunology, and proprietary synthetic biology tech in its drug-creation platform to rapidly identify antibodies produced by super immune responders for AI optimization for development of best-in-class candidates for ailments such as Inflammatory Bowel Disease. The company claims it takes six weeks to go from generating AI-designed antibodies to producing wet lab-validated candidates.
On January 22nd, Needham initiated coverage of Absci Corporation (NASDAQ:ABSI) with a “Buy” rating and a stock price target of $9. Needham analyst Gil Blum noted that the company’s ability to rapidly develop large-scale, indication-agnostic datasets for biologics using its high-throughput platform helps lower downstream clinical failures. Blum added that Absci Corporation’s (NASDAQ: ABSI) value lies in its ability to build in-house proprietary assets and monetize clinical-stage assets through partnerships with leading pharma companies for milestone payments and royalties rather than directly handling commercialization for steady income.
9. Medtronic (NYSE:MDT)
Number of Hedge Fund Holders: 60
Medtronic (NYSE:MDT) designs and manufactures medical devices as well as develops healthcare technologies and therapies for 70-plus health conditions involving cardiovascular, neuroscience, diabetes, orthopaedics, and urology. The medical devices leader is leveraging AI to enhance clinical decision-making, devise new indicators, and deliver customized treatment options.
On January 17th, Medtronic announced that its DEFINE AFib clinical study of 973 patients involving the company’s LINQ family of insertable cardiac monitors and AI-based algorithms helped detect atrial fibrillation (AF) episodes and identify high-risk participants with 80% accuracy. The study will enable researchers to refine AI and machine learning algorithms to predict the requirement of AF-related healthcare for individuals at high risk and ensure ideal treatment decisions.
8. Boston Scientific Corp (NYSE:BSX)
Number of Hedge Fund Holders: 60
Boston Scientific Corp (NYSE:BSX) is a biomedical engineering firm that manufactures medical devices used in interventional medical specialties, including cardiology, neurology, oncology, urology, and gynaecology. The company has heavily invested in AI-driven health solutions to streamline operations, enhance in-patient engagement for better care, and empower healthcare professionals with accurate data for faster and more accurate decision-making.
On January 21st, Barclays hiked Boston Scientific Corp’s (NYSE:BSX) target price to $111 from $86 and retained its “Overweight” rating. While the medtech industry outlook for 2025 will depend on factors like inflation, surgical volumes, and policy changes under the new US Administration, Barclays remains “generally bullish” on the fundamentals of most end markets. It highlighted that utilization appears to be ending the year at a “healthy clip,” and low unemployment rates favor continued healthcare utilization and surgical procedure growth.
7. Teladoc Health Inc. (NYSE:TDOC)
Number of Hedge Fund Holders: 32
Teladoc Health Inc. (NYSE:TDOC) is a virtual healthcare leader that enables secure patient-clinician engagement via telephone and videoconferencing software for remote medical care. The company is increasingly using GenAI to improve patient safety and care delivery for hospitals as well as automate clinical documentation during virtual consultations to address workforce challenges and improve virtual nursing services.
However, Bank of America analysts marginally trimmed the company’s target price to $10.5 from $11.5 and retained a “Neutral” rating on 21st January based on lower peer multiples as it monitors their trajectories while keeping track of pricing changes at Teladoc Health (NYSE:TDOC) core business.
6. Relay Therapeutics Inc (NASDAQ:RLAY)
Number of Hedge Fund Holders: 30
Relay Therapeutics Inc. (NASDAQ:RLAY) is a leading clinical-stage precision medicines firm focused on cancer treatments. The company uses AI and ML for drug discovery, combining computational power with new-age experimental data to offer insights into protein motion and function and identify candidates that can be transformed into novel therapies.
On January 17th, Barclays assigned a “Buy” rating on the stock with a $17 target price. Barclays analysts said Eli Lilly’s (NYSE:LLY) upcoming acquisition of Scorpion Therapeutic will likely have a positive impact on Relay Therapeutics Inc (NASDAQ:RLAY) due to their similar competitive PI3Kalpha programs in breast cancer. The brokerage highlighted that Relay’s RLY-2608 is ahead in clinical development, and Scorpion’s $2.5 billion acquisition value implies an upside in Relay shares.
5. Recursion Pharmaceuticals (NASDAQ:RXRX)
Number of Hedge Fund Holders: 16
Recursion Pharmaceuticals (NASDAQ:RXRX) is an emerging clinical-stage biotech firm that uses AI, bioinformatics, experimental biology, and automation to industrialize drug discovery for various diseases. It also collaborates with leaders in the drug discovery space to reduce timelines and costs for identifying and optimizing lead candidates.
On January 17th, J.P. Morgan said that Recursion Pharmaceuticals’ (NASDAQ:RXRX) presentation updates at the firm’s recently held healthcare conference were “largely in line/as anticipated.” Analysts believe it will take definitive clinical wins from the company’s pipeline to validate the evolving platform and “for shares to become constructive by extension.” The brokerage maintained a “Neutral” rating on the stock.
4. Tempus AI (NASDAQ:TEM)
Number of Hedge Fund Holders: 7
Tempus AI (NASDAQ:TEM) uses AI to extract insights from its mega repository of clinical and molecular data, with the goal of helping physicians make real-time, data-driven decisions. In turn, medical professionals are able to offer personalized care and targeted therapies via their ML platform. Its unparalleled platforms accelerate the discovery of novel targets, identify life-saving clinical trials, and help predict the effectiveness of treatments.
On January 14th, Loom Capital reduced the company’s target price to $52 from $57 while retaining a “Buy” rating. The brokerage argued that Tempus AI’s (NASDAQ:TEM) below-consensus Q4 revenue pre-announcement, though the deficit was potentially due to weakness in the company’s Compass Contract Research Organization division, which Loop Capital views as a non-core segment. Analysts added that Tempus AI (NASDAQ:TEM) also didn’t divulge formal profitability guidance, except a projected sequential growth in adjusted EBITDA in Q4.
3. Oscar Health Inc. (NYSE:OSCR)
Number of Hedge Fund Holders: 45
Oscar Health Inc. (NYSE:OSCR) is a leading health tech firm striving to reinvent health insurance using AI to speed up and automate manual processes while lowering healthcare costs. It offers diverse plans for individuals, families, and employees, including virtual care and doctor support. The company partnered with OpenAI to trim clinical documentation and lab test review time. Furthermore, Oscar Health Inc. (NYSE:OSCR) also developed an AI-powered claims assistant to reduce the time required to resolve claims processing escalations by 50%.
On December 10th, 2024, Jefferies initiated coverage of Oscar Health Inc (NYSE:OSCR) with an “Underperform rating” and a $12 price target. Analyst David Windley said the company’s core business is “overstimulated” by enhanced subsidies. Given its overexposure to subsidy-sensitive states, buybacks may not fully mitigate headwinds. However, Oscar Health Inc. (NYSE:OSCR) targets a 20% revenue CAGR through 2027 and a 5% operating margin, implying an operating income close to $700 million in three years.
2. Schrödinger Inc. (NASDAQ:SDGR)
Number of Hedge Fund Holders: 17
Schrödinger Inc. (NASDAQ:SDGR) leverages quantum mechanics in medicine and material design to assist biopharma firms and government laboratories in their research efforts. The company’s drug discovery programs in a range of therapeutic areas help reduce risk in drug development by identifying high-value targets through clinical validation. The declining cost of computation, the company’s protein structure prediction tech, and AI integration with its physics-based platform are expanding its ability to accelerate physics simulations and develop new tech called machine-learned force fields to accurately predict molecular properties.
Schrödinger Inc. (NASDAQ:SDGR) shares surged to above $24 after Hunterbrook Media, the media arm of Hunterbrook Capital, said on January 22nd that the firm is long on the company and described the company as a “key AI winner.” The company has consistently increased its software revenues over the years, but its unique position as a part-biotech, part-software business has presented valuation challenges for investors. However, the report stated: “Now Schrödinger has cautiously embraced AI, announced a new round of deals with partners ranging from Novartis to Nvidia, and this year will report clinical data from its first three internal drugs.”
1. Certara Inc. (NASDAQ:CERT)
Number of Hedge Fund Holders: 18
Certara Inc. (NASDAQ:CERT) offers its Model Informed Drug Development (MIDD) biosimulation software and AI-driven services to help pharma and biotech firms speed up the journey of drug research, development, and market approval. The proprietary software and a leading drug development team enable the company’s clients to derisk projects, reduce costs and timelines, and help better understand the impact of new therapies on patients. The company’s Certara.AI platform is used for deploying client-specific generative pre-trained transformers (GPTs) in the life sciences sector.
On January 17th, Leerink Partners boosted the company’s target price to $13 from $12 and reiterated its “Hold” rating. Analyst Michael Cherny’s rating is based on Certara Inc.’s (NASDAQ:CERT) robust FY24 performance, driven by revenue growth in both software and services segments, attributable to the Chemaxon acquisition. However, the brokerage remains cautious of potential weakness in services and volatility in the end markets for this year.
While we acknowledge the potential of Certara Inc. (NASDAQ:CERT) as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than CERT but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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