2 Biotech Stocks to Buy as AI Drug Discovery Lifts Off

AI-assisted drug discovery isn’t just science fiction anymore, especially as biotechnology and biopharma firms embrace the AI age. Undoubtedly, it’s no mystery as to why many wish to be underweight in the biotech names, given the tremendous beta and how difficult it is to gain an edge when it’s virtually impossible to tell which drugs in the pipeline will make it past all the hurdles (clinical trials).

It’s quite labor-intensive to go about testing a new drug, but until there’s a better way to go about the discovery of novel treatments and drugs, the biotech industry remains one of the trickier places to put new money to work. Perhaps health and biotech are the places where AI could demonstrate a profound amount of value.

Undoubtedly, there’s a lot of dread, skepticism, and even fear about what AI could do to jobs as well as the economy at large. Still, if it means more diseases can be cured, the potential rewards of AI may ultimately outweigh the risks. AI drug discovery has to be one of the most impressive potential applications of the technology, especially as we race ahead into the age of agentics.

AI drug discovery might be where AI really becomes useful

For now, value investors may be right to be skeptical that AI can deliver on drug discovery. Biology remains one of the most difficult sciences to tackle, but with Google DeepMind earning a Nobel Prize under its belt for its protein-folding problem with its AlphaFold project, I do think there’s reason to be encouraged as AI looks to solve other problems en route to AI drug discovery.

It’s hard to tell when AI-driven drug discovery will “take off,” but the odds seem to increase every year as models become more capable and tailored while costing less and becoming easier for firms to adopt. Recursion Pharmaceuticals (NASDAQ:RXRX) and Eli Lilly (NYSE:LLY) stand out as two biotech stocks worth careful consideration as AI comes for biotech.

Recursion Pharmaceuticals

AI-focused biotech firm Recursion Pharmaceutical is more of a speculative bet, but one that’s worth following closely, especially since the name has captured the attention (and investment dollars) of Ark Invest’s Cathie Wood as well as Nvidia‘s (NASDAQ:NVDA | NVDA Price Prediction) Jensen Huang. The stock has already cratered more than 90% and goes for a $1.9 billion market cap.

Still, JPMorgan analyst Priyanka Grover upgraded shares back in December, thanks in part to hope for its REC-4881, which aims to treat familial adenomatous polyposis (FAP). Beyond this candidate, Grover is encouraged by other candidates within the firm’s “AI-driven pipeline,” which is “further validated by clinical results and by pharmaceutical partnerships.”

Of course, Recursion isn’t close to being out of the woods yet, but the $11.00 price target implies a near tripling from here. The name is too speculative for me, but it’s hard to argue against a JPMorgan analyst, especially if you’re willing to take great risk.

Eli Lilly

For those seeking a steadier blue chip, Eli Lilly might be a better bet, especially following its $1 billion collab with Nvidia for work on a co-innovation lab. On its own, Lilly is a force in biotech; however, as it unlocks the power of AI with the very best hardware with Nvidia’s Vera Rubin chips paired with the BioNeMo platform, perhaps it’s time to think about how the company can transform as it makes a massive splash in AI.

With a treasure trove of data and a helping hand from the AI king in Nvidia, I find it tough to dismiss Eli Lilly and its AI ambitions. While GLP-1 drugs are the star of the show (for now), it might not take long before focus shifts to AI drug discovery, which might make weight-loss shots and pills be what video gaming was for Nvidia 10 years ago.

In the meantime, the stock looks like a great value while the market cap remains just south of $1 trillion.