Nvidia recently disclosed which stocks it has invested in, and while it reported a sizable position in chip designer Arm Holdings, the list also included a couple of notable healthcare companies focused on next-gen technologies.
The two healthcare stocks in Nvidia’s portfolio are Nano-X Imaging (NASDAQ: NNOX) and Recursion Pharmaceuticals (NASDAQ: RXRX). Let’s have a closer look at what’s so promising about these stocks and whether they are investments you should consider adding to your portfolio as well.
Nano-X Imaging
Nano-X Imaging makes X-ray beds that simplify the imaging process. The Nanox.ARC is a 3D tomosynthesis imaging system that is lightweight. The company says it can help bring “advanced radiographic visualizations to all markets.” It uses the Nanox.Cloud system to enhance and improve diagnostics.
There’s the potential for the Nanox.ARC to be a game changer for hospitals around the world. According to the company’s investor presentation, two-thirds of the world’s population doesn’t have access to medical imaging. It’s a noble goal for Nano-X to help fill that void, but it still has a long road ahead.
For the first nine months of 2023, the company generated just $7.5 million in revenue while incurring operating expenses totaling more than $47 million. The company is still in the early stages of commercializing Nanox.ARC, and in the meantime, it’s burning through plenty of cash.
Nano-X used up $32.3 million over the course of its day-to-day operating activities over the first three quarters of last year, and its cash and cash equivalents balance as of Sept. 30, 2023, was $66.4 million. So the risk of dilution is high for Nano-X, and while what the company is saying sounds promising, it could be a long road ahead before it reaches breakeven, assuming it can ever get there.
Nvidia can afford to invest in a high-risk company that’s in its early growth stages, but that might not be the case for most investors. Nano-X is an intriguing healthcare stock to watch, but it’s not one I’d rush out to buy right now.
Recursion Pharmaceuticals
Nvidia’s stake in Recursion Pharmaceuticals is its largest after Arm Holdings, at just under $76 million. Last year, Nvidia announced a $50 million collaboration to work with the biotech on accelerating drug discovery, using artificial intelligence (AI) and the tech company’s cloud service BioNeMo.
Recursion presents the biological and chemical datasets, while Nvidia will use its AI, according to the biotech, to help “create groundbreaking foundational models.”
While this also sounds promising, as does Nano-X, Recursion’s business is also unproven. The company’s own pipeline features programs that are no further along than phase 2 trials, and thus could still be years away from generating any meaningful revenue — assuming they obtain regulatory approval.
While Recursion does generate revenue through research and development agreements, the company is another highly risky investment. Over the first nine months of 2023, Recursion reported revenue of $33.7 million, but its operating costs were more than 8 times that tally at $284.8 million. During that time, it also burned through $213.7 million in cash over the course of its operating activities.
Investors should brace for stock offerings and dilution since the company’s cash balance as of the end of the period totaled $397.2 million.
Recursion is another example of a healthcare stock with high risks and high rewards that might not be suitable for most investors. And again, while Nvidia can afford to take a chance on these types of risky stocks (like Nano-X), you might be better off considering other healthcare investments instead.
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David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.
These 2 Healthcare Stocks Are in Nvidia’s Portfolio. Should They Be in Yours? was originally published by The Motley Fool
