Many investors seek to capitalize on the rapidly growing artificial intelligence (AI) industry. One way to do that is to buy shares of the leading companies in the field, such as Nvidia. However, the chipmaker has been on a tear for the better part of three years, and some might argue it is currently overvalued.
Another way to profit from AI is to invest in lesser-known, beaten-down AI-focused players. This strategy, however, can only work if there are good reasons to believe the company in question can recover.
With that background, let's look at one AI company that continues to move in the wrong direction: Recursion Pharmaceuticals (NASDAQ: RXRX). The biotech (or techbio) has seen its share price drop by 24% already this year. Is now a good time to buy the stock? Let's consider one argument in favor and two arguments against investing in Recursion Pharmaceuticals.
AI can help reduce expenses and costs in many areas; why not drug development? That's what Recursion Pharmaceuticals is betting on. The company utilizes an AI-powered algorithm to expedite the initial stages of the process.
Developing novel medicines is expensive, risky, and time-consuming. Most clinical compounds that make it to human clinical trials ultimately fail to reach the market. Despite significant technological progress over the past few decades, the business of drug development has only become more challenging.
By predicting which clinical compounds are the most likely to be safe and effective through an AI-based operating system that tests compounds against a library of human genes, Recursion hopes to increase the probability of success, cut drug development time, increase sales (since they would make it to the market sooner, they would generate revenue for longer periods before dealing with patent cliffs), and increase profits.
If the company's vision becomes a reality, it would transform the entire pharmaceutical industry, and Recursion Pharmaceuticals could become incredibly successful in the process. That's an important reason to consider buying the stock.
Although Recursion Pharmaceuticals' grand vision looks exciting, the market needs more than just a vision to reward a stock. It needs results. And so far, the biotech company has little to boast about.
