These companies have gotten in on AI early and could emerge as winners.
Artificial intelligence (AI) has caught the eye of investors because of its potential to transform many industries, and the biggest impact could be in the area of healthcare. That’s because this technology could solve the No. 1 problem of drug development, the lengthy time it takes to bring a candidate from drawing board to commercialization. And it could result in better drugs and medical devices, leading to better patient outcomes.
All of this means companies leading the way may see their earnings explode higher over time. On top of this, the AI in healthcare market is expected to expand at a compound annual growth rate of 48% to reach $148 billion by 2029, according to Markets and Markets research, meaning we’re just at the start of this exciting story. Ready to get in on the most promising players early? Then consider these two AI in healthcare stocks to buy and hold for their great long-term potential.
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1. Moderna
Moderna (MRNA -1.22%) shares took off earlier in the pandemic as the company commercialized its coronavirus vaccine and generated billions of dollars in earnings. These days, vaccine demand is on the decline, and even though the product still is likely to generate recurrent revenue during fall vaccination seasons, it’s not set to return to the levels we’ve seen in the past. This has worried investors about the biotech’s future prospects.
But there’s reason to be optimistic about this innovative company. Moderna not only has many late-stage candidates in the pipeline, but it’s also making AI a priority. The company already has used the technology in the vaccine development process, speeding up certain key steps for researchers. And last year it announced a deal with International Business Machines to use the company’s technology to supercharge its research.
For example, it’s using IBM’s foundation model MolFormer to predict the properties of molecules, with the idea of developing better mRNA medicines more quickly. This is positive because it could result in products reaching the market faster, offering Moderna new sources of revenue.
And Moderna is applying AI throughout the company in order to gain in efficiency and performance. The company will “embrace this new technology to transform how we work at Moderna across everything we do,” Chief Executive Officer Stéphane Bancel said at an investor event last year.
So, Moderna’s stock may be in the doldrums now, but over time it could not only recover, but soar, as AI helps power the company toward its goals.
2. Medtronic
Medtronic (MDT 0.12%) is a medical device giant, selling products in markets including diabetes, cardiovascular, medical surgical, and neuroscience. The company maintains an ongoing flow of new revenue opportunities thanks to a deep pipeline — and this helped it win about 130 product approvals in key geographies over the past year.
The medical device giant has increased earnings over time, but today, it may be entering a whole new phase of growth, thanks to efforts to streamline its business and boost efficiency and its early entrance in the AI in healthcare market.
Medtronic already has won approval for five AI products, from the GI Genius intelligent endoscopy system to the MiniMed 780G system for diabetes management. These and Medtronic’s other AI-powered products have what it takes to lead to better patient outcomes, and in some cases help surgeons maximize their performance. And that means these products could become more and more sought after by patients and hospitals over time.
Medtronic has established an AI center of excellence to accelerate AI innovation throughout the company — and this early AI player says the technology even holds the key to personalized medicine, something that could be a game-changer in the healthcare field.
So, there’s reason to believe Medtronic, a profitable company with a solid long-term track record, could emerge as a leader in the AI race. And that’s why the stock is a top one to buy — at today’s valuation of 15 times forward earnings estimates — and hold for the long haul.
Adria Cimino has no position in any of the stocks mentioned. The Motley Fool recommends International Business Machines, Medtronic, and Moderna. The Motley Fool has a disclosure policy.
