Investing in A.I. appears to have become quite an ordinary topic over the past few years. Yet, most investors can hardly claim they know enough about the specifics of A.I. - and neither can I. It's undoubtedly a complex area with multiple fronts, yet an exciting and intriguing one to research. In this article, I am going over several companies whose A.I. developments in their respective industries are straightforward enough to fairly comprehend but which also feature healthy financials and profitability.
That last part is quite crucial, as, in a tough capital market environment, promising tech alone is not enough. I want to make sure these companies generate enough cash to stay afloat while retaining the upside that is likely to come through their extraordinary A.I. innovations. The A.I. space is already a highly speculative one, so the last thing you should go for is further uncertainty these days.
A.I. in HealthcareStarting with a rather unconventional industry when it comes to A.I. investments, drug discovery appears to be the healthcare sector's area on which A.I. can have the most impact. Successful companies in the space won't only save pharma giants billion of dollars in R&D but will likely also enjoy recurring cash flows either in the form of a SaaS business model or through royalties from the future sales of discovered drugs.
How does this work? Well, in simple terms, technological developments lately have made it possible to capture and store massive quantities of digital patient data. This has led to amassing a wealth of genomic data, health records, and medical imaging, amongst other patient info, which AI platforms can then process to assist in developing drugs at a faster pace. This also allows for a more promising chance of success during the premature stages of development.
The four companies I believe have established an edge in the space so far are Exscientia plc (NASDAQ: EXAI), AbCellera Biologics Inc. (NASDAQ: ABCL), Schrödinger, Inc. (NASDAQ: SDGR), and Recursion Pharmaceuticals, Inc. (NASDAQ: RXRX). Amongst these choices, I would favor AbCellera Biologics in the current environment, as it is not only profitable, but it also features a clean balance sheet that has $0 in debt. That's a great perk in a rising-rates environment.
AbCellera Biologics' Income StatementA.I. in FinanceWhile fintech has transformed the financial services sector dramatically over the years, A.I. has yet to have a major impact in the space. Amongst the few pure A.I. plays in the space is Lemonade (NYSE: LMND), whose investment case is quite intriguing, considering its insurance products are fully operated by artificial intelligence and behavioral economics. Still, the company remains unprofitable, which is why I have another favorite pick in the space.
Specifically, Upstart Holdings' (NASDAQ: UPST) high-margin A.I. lending platform is already gaining increased traction lately, with one bank after the other choosing the company's algorithms for their lending products.
Upstart's Income StatementThe company's A.I. should become increasingly advanced as its algorithm learns how to determine which persons have the lowest or highest possibility of defaulting or what the most optimal lending period is from the bank's perspective based on a person's financial profile. Thus, Upstart should become a staple in the banking industry.
A.I. in AutomotiveWhen it comes to the automotive industry, it appears that A.I.'s most prominent role will be in the optimization process of self-driving cars. The leaders here are all profitable companies, so it all comes down to which sub-industry you want to be invested in (e.g., through communications, semiconductors, etc.).
Tesla (NASDAQ: TSLA) has already surpassed 35 million miles driven on Full Self-Driving Beta. Alphabet's (NASDAQ: GOOGL) (NASDAQ: GOOG) Waymo Driver has built up over 20+ million miles of real-world driving and 20+ billion miles in simulation driving. Self-driving cars are no longer a fantasy, it's actually happening.
The companies whose A.I. will end up having an advantage in critical real-life concerns like road safety will prevail. It's a combo of tech plus driven miles, and Tesla and Waymo already have a strong headstart.
In the semiconductor land, NVIDIA Corporation's (NASDAQ: NVDA) A.I. deployed through its semis should make it a strong participant in the value chain. Its A.I. makes physics-based simulation possible on an open, hardware-in-the-loop platform for testing and validating AVs before they hit the road - a crucial feature for road safety as well.
A.I. in Contracts and Fraud DetectionI have bundled contracts & fraud detection together as they are interconnected in many ways. These are not really "industries" but niche areas of the larger cybersecurity spectrum. DocuSign (NASDAQ: DOCU) appears to be the company that is best positioned to develop A.I. that aims to resolve contractual and fraud detection solutions.
The company already has the leading software in the space. Its goal is to find answers quickly to pressing challenges around supply chain vulnerabilities, sales relationships, and legal obligations.
It also attempts to identify the terms in a document that are favorable. As you can imagine, an accurate A.I. product in this field has massive potential and, over the long run, could become a must-have for all businesses that would otherwise be missing out on potentially optimizing their agreements.
Takeaway - Go for the Tech, but Buy for the ProfitsThere are numerous companies developing exciting A.I. products and solutions these days. While it all still feels very "early" when it comes to who will dominate certain areas of A.I., the companies featured here appear to have a headstart in their respective fields. You may have pinpointed others, but in any case, I would urge you to go for the profitable ones. Sure, be convinced by the tech, but make sure the company of your choice is profitable so that it can withstand the ongoing headwinds.