Nvidia (NASDAQ: NVDA) stands tall as a pioneer in the realm of artificial intelligence (AI) hardware development, spearheading the AI revolution. Yet, its involvement in the AI landscape extends beyond innovation; Nvidia has strategically invested in other AI companies, with a sizeable equity stake in select entities. By December, Nvidia’s AI-centric investment portfolio had exceeded $100 million, prompting the obligatory disclosure filing, Form 13-F, with the SEC to reveal its holdings.
Within Nvidia’s compact portfolio, encompassing just five stocks, a staggering 97% is concentrated in two principal holdings.
The significant chunk of Nvidia’s investment lies in ARM Holdings, the chip architecture giant the AI behemoth sought to acquire for $40 billion in 2020. Opting for a stake valued at $190 million at present, Nvidia’s investment in ARM Holdings mirrors only a fraction of the latter’s $100 billion valuation.
Image source: Nvidia.
Nvidia’s next largest holding, however, reflects a more substantial stake in an innovative AI entity – Recursion Pharmaceuticals (NASDAQ: RXRX). This company leverages AI to mine data for the discovery of potential new drugs. Should it succeed in developing a ground-breaking medication, it could potentially become Nvidia’s most significant investment.
Empowering Progress through AI Innovations
Recursion operates as a biotech firm dedicated to streamlining drug discovery through big data and AI. By amalgamating public datasets with proprietary information, Recursion uncovers potential new compounds. Applying its algorithms to sift through these compounds, it identifies viable candidates for rare disease treatments or precision-targeted cancer therapeutics.
Recursion affirms that its strategy whittles down the development candidate pool from initial screening to under 10% of a traditional drug discovery company’s volume. This precision focus enables the firm to channel its resources solely towards the most promising options, fostering efficiency and agility.
The company presently has five treatments advancing through phase 2 clinical trials, each targeting patient cohorts of less than 1 million, with the majority serving populations under 100,000. Hence, a breakthrough could render Recursion the exclusive provider for these demographics.
Should Recursion demonstrate consistent success, agility, and cost-effectiveness compared to industry counterparts, it could unlock a realm of lucrative prospects. Beyond continuing its drug discovery and development endeavors, Recursion might license its platform to other pharmaceutical firms engaging in complex domains, generating upfront capital for expansion.
The company has already forged partnerships with Roche and Bayer to facilitate the discovery of oncology targets and neuroscience therapies.
Decision-Making Time: Investment Prospects with Nvidia and Cathie Wood
Considering investment in Recursion signals a bold wager on the efficacy of the company’s operational model resulting in a marketable drug.
Currently, Recursion’s revenue is predominantly derived from collaborative pacts with other pharmaceutical entities, amounting to $44 million last year, witnessing an increase from $40 million in 2022.
However, as the firm delves into drug discovery and platform augmentation initiatives, its cash reserves are depleting. Research and development (R&D) expenses inflated to $241 million last year, up from $156 million in the previous year, while overall operating losses mounted from $246 million to $350 million.
Ending the year with $392 million in cash, Recursion possesses a runway, albeit, further capital injections are inevitable to sustain operations, potentially diluting existing shareholders’ interests.
Albeit a risky investment, success could yield substantial rewards for Recursion. With a market capitalization of $1.85 billion, the company stands as a minnow compared to the pharmaceutical industry’s $1.6 trillion in sales generated last year.
For investors in pursuit of a high-risk, high-reward venture, Recursion presents a compelling opportunity. Endorsed by Nvidia and several AI and pharmaceutical industry stalwarts, including Cathie Wood, who has elevated it to a prominent position within her genomics-focused ETF, the choice beckons significant potential returns, albeit punctuated with risks.
Diving In: The Appeal of Investing in Recursion Pharmaceuticals
Prior to diving into Recursion Pharmaceuticals’ stock, it is imperative to weigh the following:
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Adam Levy has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool recommends Roche Ag. The Motley Fool has a disclosure policy.