Since the initial release of Open AI’s Chat GPT in 2022, the adoption of artificial intelligence (AI) technology has spread across the world, growing to encompass every industry thanks to its ability to expedite mundane tasks, draw conclusions from vast amounts of data and generate working drafts for new projects. This shift has led to a proliferation of opportunities for investors to capitalize on, including a strong contingent of healthcare stocks keen on applying AI technology to improve patient outcomes.
How we picked the 10 best AI healthcare stocks
To narrow down our list of the best AI healthcare stocks, we turned to The Globe and Mail’s stock screener and sorted for year-over-year (YoY) earnings-per-share (EPS) growth of over 25 per cent to capture companies with upward-trending profitability.
We then listed these companies by market capitalization to minimize volatility and compiled the 10 biggest among them that are generating positive net income (to ensure EPS growth isn’t happening at a loss) while actively engaging with AI technology. Here’s what we found:
- Eli Lilly, market capitalization US$853.8 billion, YoY EPS growth of 85.78 per cent.
- Merck, market cap US$275 billion, YoY EPS growth of 210.68 per cent.
- Gilead Sciences, market cap US$105.1 billion, YoY EPS growth of 50 per cent.
- HCA Healthcare, market cap US$100.1 billion, YoY EPS growth of 28.21 per cent.
- ResMed, market cap US$34.1 billion, YoY EPS growth of 30 per cent.
- Dexcom, market cap US$27.2 billion, YoY EPS growth of 26.47 per cent.
- Biogen, market cap 26.9 billion, YoY EPS growth of 31.34 per cent.
- Insulet, market cap US$15.9 billion, YoY EPS growth of 44.74 per cent.
- Tenet Healthcare, market cap US$14.9 billion, YoY EPS growth of 60.42 per cent.
- Universal Health Services, market cap US$14.2 billion, YoY EPS growth of 70.36 per cent.
The 10 best AI healthcare stocks
1. Eli Lilly
Eli Lilly (NYSE:LLY) is a pioneering medicine company whose products help tens of millions of people around the world. The company’s research is centred on diabetes care, obesity, Alzheimer’s disease, cancer and immune system disorders.
Its initiatives related to AI, guided by its newly appointed chief AI officer, Thomas J. Fuchs, span “drug discovery, clinical trials, manufacturing, commercial activities and internal functions,” according to a recent news release.
Eli Lilly has been net income positive over the past five fiscal years while growing revenue – including almost US$20 billion in revenue and more than US$5 billion in net income in 2024 – propelling the healthcare stock to an over 740 per cent return over the period.
2. Merck
Merck (NYSE:MRK), known as MSD outside of the United States and Canada, is a research-intensive biopharmaceutical company that has been developing medicines and vaccines for more than 130 years.
The company’s foray into AI focuses primarily on software that enhances drug discovery and development by way of high-throughput screening and experimentation.
Similar to Eli Lilly, Merck has been net income positive for the past five years while growing revenue – including over US$30 billion in revenue and more than US$10 billion in net income in 2024 – though investors have only collected about a 35 per cent return over the period.
3. Gilead Sciences
Gilead Sciences (NDAQ:GILD) is a biopharmaceutical company with a 35-year track record of medical breakthroughs. Its resources, diversified across over 35 countries, are advancing the prevention of HIV, viral hepatitis, COVID-19, cancer and inflammation. The company has developed 12 HIV medications, helping to turn the disease into a treatable, preventable and chronic condition for millions of people.
Gilead’s push into AI is centred on its partnership with Genesis Therapeutics to create and evaluate molecules as potential treatments for multiple targets using the latter’s Genesis Exploration of Molecular Space (GEMS) platform.
Though revenue has stagnated in recent years, Gilead has generated between US$4.2 billion and US$6.2 billion in annual net income since 2019 – excluding an over US$4.4 billion impairment and acquisition-related loss in Q1 2024 – suggesting the stock’s approximately 35 per cent return over the period undercuts the company’s long-term potential for profitability.
4. HCA Healthcare
Nashville-based HCA Healthcare (NYSE:HCA) is one of the largest healthcare service providers in the U.S. Its network spans 20 states, as well as the United Kingdom, and facilitates more than 43 million patients visits per year across 188 hospitals and 2,400 ambulatory sites of care, including surgery centers, freestanding emergency rooms, urgent care centers and physician clinics.
HCA’s ventures in AI include intelligent staffing and automated medical documentation, each of which are part of its broader mission to advance science, improve patient care and save lives.
Having delivered revenue growth of 26.5 per cent over the past five fiscal years, backed by 50 per cent net income growth to over US$5.2 billion in 2023 – plus almost US$35 billion in revenue and more than US$3 billion in net income in 2024 – it’s no surprise that investors in the healthcare stock have enjoyed a multi-bagger return in excess of 200 per cent over the period.
5. ResMed
ResMed (NYSE:RMD) offers digital health technologies and cloud-connected medical devices for people with sleep apnea, COPD and other chronic diseases in more than 140 countries.
The innovator’s AI-based projects include Dawn, a sleep health concierge and education app, as well as proprietary algorithms embedded in its sleep apnea machines – such as the AirSense – that allow them to tailor treatment on a breath-by-breath basis.
Despite revenue growth of 46.7 per cent and net income growth of 115 per cent over the past four fiscal years, Resmed investors have collected only a 47 per cent return to date, well behind the S&P 500’s 95.76 per cent effort.
6. Dexcom
California-based Dexcom (NDAQ:DXCM) is a medical device provider focused on diabetes care and continuous glucose monitoring systems.
The company launched an AI-powered app with RxFood in 2023 that derives diet quality and glucose data from photos, allowing diabetes patients to streamline their nutritional management. It has also been engaged in wide-ranging process automation for a number of years covering tech support, human resources, information technology, quality control, customer advocacy, finance and accounting.
Dexcom has more than doubled revenue over the past five fiscal years from US$1.4 billion in 2019 to US$3.6 billion in 2023, while growing net income by over 5x from US$101 million to US$541 million over the period. It has continued this upward momentum with almost US$2 billion in revenue and approximately US$290 million in net income through 2024, making its 78.89 per cent return since 2019, seem excessively slight.
7. Biogen
Biogen (NDAQ:BIIB), founded in 1978, is a biotechnology company actively developing or commercializing treatments for Alzheimer’s disease, lupus, multiple sclerosis and post-partum depression, among others.
The company signed on for a three-year collaboration with Quebec-based AI research institute Mila in Feb. 2023 to apply AI and machine learning to therapy development. It also joined the OpenFold nonprofit AI research consortium in Aug. 2024, to aid in the organization’s development of free and open-source software for biology and drug discovery.
Biogen investors have had a rough go of it since 2019, suffering through an over 30 per cent drop in revenue to under US$10 billion in 2023, worsened by an over 80 per cent drop in net income to US$1.16 billion. Though the company is on track for a better 2024, supported by almost US$1 billion in net income through Q1 and Q2, and half the year left to add on to this figure, shareholders still remain at a 28.91 per cent loss year-over-year and a 15.87 per cent loss since 2019.
8. Insulet
Insulet (NDAQ:PODD) is a medical device company dedicated to improving the lives of people with diabetes through its Omnipod insulin management system, which offers non-stop, wearable, tubeless and smartphone-compatible insulin delivery for up to three days without the need for needles. Insulet also leverages its Omnipod technology for the delivery of non-insulin drugs across multiple therapeutic areas.
The company made numerous investments in automated insulin delivery technology in 2023 and received European Union approval to roll out its artificial pancreas in partnership with Abbott in Feb. 2024.
Insulet more than doubled revenue from US$738 million in 2019 to US$1.69 billion in 2023, bolstered by a 17.78x jump in net income from US$11.6 million to US$206.3 million over the period. The company has gone on to add over US$900 million in revenue and over US$240 million in net income through 2024, strengthening its stock’s case for undervaluation, having delivered an only 51.2 per cent return since 2019.
9. Tenet Healthcare
Dallas-based Tenet Healthcare (NYSE:THC) is the diversified healthcare services company behind United Surgical Partners International, the largest ambulatory surgery platform in the United States. The company’s portfolio also includes:
- A nationwide network of acute care and specialty hospitals, outpatient facilities, a network of leading employed physicians and a global business center in Manila, Philippines.
- Conifer Health Solutions, a subsidiary that provides revenue cycle management and value-based care services to hospitals, health systems, physician practices, employers and other clients.
Tenet’s AI projects touch on task automation, the prediction of patient outcomes and the early detection of strokes and vascular conditions, garnering the company a nod from Goldman Sachs in a recent U.S. equity market update.
While Tenet only grew revenue by about 16 per cent from US$17.6 billion in 2020 to US$20.5 billion in 2023, achieving positive though inconsistent net income over the period, investors have not been shy about showing their optimism for owning the healthcare stock, propelling the price by 169.13 per cent YoY and 587.73 per cent since 2019.
10. Universal Health Services
Our final AI healthcare stock to consider is Universal Health Services (NYSE:UHS), one of the largest providers of hospital and healthcare services in the United States, including more than 400 acute care hospitals, behavioral health facilities and ambulatory centers across the U.S., Puerto Rico and the U.K.
The company is a founding partner of Hippocratic AI, a US$500 million operation building the first safety-focused large language model designed specifically for healthcare.
Universal Health Services grew revenue every year from 2019-2023 for a total of 25.6 per cent, while delivering annual net income between US$675 million and US$943 million over the period. Despite consistent and profitable growth, which has continued through Q1 and Q2 2024, investors have only managed to scrape together a 46.46 per cent return over the past five years, vastly underperforming the S&P 500.
Now that you have 10 of the best AI healthcare stocks on your radar, all there’s left to do is put them through your personal due diligence process and potentially buy them for your portfolio.
Join the discussion: Find out what everybody’s saying about these AI healthcare stocks on the Eli Lilly and Co., Merck and Co., Gilead Sciences Inc., HCA Healthcare Inc., ResMed Inc., Dexcom Inc., Biogen Inc., Insulet Corp., Tenet Healthcare Corp. and Universal Health Services Inc. Bullboards and check out the rest of Stockhouse’s stock forums and message boards.
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All data is as of Oct. 8-11, 2024.
(Top photo: Adobe Stock)