Harnessing AI for Drug Discovery: Top 3 Stocks to Watch

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Artificial intelligence (AI) spans above and beyond today’s popular large language models (LLMs). OpenAI’s ChatGPT-4 Turbo or even Anthropic’s Claude 3 make for an impressive assistant for everyday tasks. These LLMs are improving at a jarring rate (GPT-5 could blow GPT-4 right out of the water). However, they may not have as much “shock” factor as the original GPT-3.5 did back in late 2022.

Undoubtedly, various firms are working hard on AI technology to make it yield something ground-breaking, perhaps in fields such as healthcare. In the meantime, generative AI seems to be still in the “pre-season,” so to speak.

As we move into the middle innings of the AI boom, though, there’s a good chance we’ll see some applaud-worthy developments in the biotech arena. Therefore, let’s delve into three notable AI stocks that could have a stake in the incredibly nascent AI-assisted drug discovery scene.

Pfizer (PFE)

Source: Manuel Esteban / Shutterstock.com

First, we have Pfizer (NYSE:PFE), an old-time biopharmaceutical company that boomed in the early days of the Covid-19 pandemic. Unfortunately, its vaccine Comirnaty and oral treatment Paxlovid crashed as life returned to normal.

At $27 per share, the stock has lost nearly 54% of its value since its 2021 peak. That’s a devastating meltdown for such a proven blue chip in the healthcare scene. With a patent cliff on the horizon and sales growth eroding, many investors may view Pfizer as a value trap. Recent delays with its GLP-1 (weight-loss) offering has prompted questions about the firm sparking a comeback.

With PFE utilizing AI (from drug discovery to progressing clinical trials faster) could help it regain investor enthusiasm again. The company is embracing machine learning (ML) in a big way with its own AI/ML research hub. Additionally, its partnership with CytoReason is beefing up its innovative abilities.

Novartis (NVS)

Source: Denis Linine / Shutterstock.com

Novartis (NYSE:NVS) is another heavyweight healthcare play that hasn’t done much lately, with a mere 11% gain in the past five years. Undoubtedly, the 3.93% dividend yield is enticing. But, the firm really needs to harness the power of next-generation technologies like AI for a good shot in the arm.

Indeed, harnessing AI doesn’t mean Novartis will suddenly have a breakthrough cure. However, the firm may be able to make it through the often time-intensive hit-or-miss types of experiments more efficiently.

Already, Novartis is ahead of the game in using AI and ML to help in the budding field of drug discovery. Perhaps the biggest reason to side with NVS stock is its prior multi-year partnership with AI frontrunner Microsoft (NASDAQ:MSFT). The deal was initiated in 2019, with benefits that may begin to trickle in during the next several years.

Alphabet (GOOG, GOOGL)

More recently, Novartis struck a deal with Alphabet (NASDAQ:GOOG, GOOGL). This is my favorite AI-assisted drug discovery play of the batch. Given the hit-or-miss nature of the biotech and biopharmaceutical stocks, AI-driven tech leaders stand out.

Alphabet’s AI prowess may be common knowledge at this point. DeepMind and its impressive Gemini LLM could have potential to give ChatGPT a good run in the coming years.

What many investors may neglect is Alphabet’s skin in the healthcare game with its Verily and Isomorphic Labs divisions. Recently, the latter teamed up with Novartis for work on AI-driven drug discovery.

Undoubtedly, Verily conducted layoffs as the parent company, Alphabet, still seems to be in its own year of efficiency and restructuring. Still, I’d not sleep on Alphabet’s lesser-known health business as AI becomes a more influential technology. Look to it to drive biotech innovations forward in the coming years and decades.

On the date of publication, Joey Frenette held shares of Microsoft and Alphabet (Class C). The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Joey Frenette is a seasoned investment writer specializing in technology and consumer stocks. Contributing to the Motley Fool Canada, TipRanks, and Barchart, Joey excels in spotting mispriced stocks with long-term growth potential in a fast-paced market.

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