Investors trying to leverage AI more may turn to a sector that is underperforming this yr and maybe not immediately related to AI: healthcare. Several big tech names rose in the first half due to a mania for all things AI. For instance, Apple closed last week with a market capitalization of $3 trillion for the first time. Nvidia is seeing growth of just about 200% in 2023. Going forward, some of those gains could spill over to healthcare, which underperformed this yr. The sector is the third weakest of the 11 in the S&P 500, down about 3% since the starting of the yr. “Loads of people are talking about AI-powered productivity and the way it can impact the tech sector. I feel this is well understood,” said Jamie Cox, managing partner at Harris Financial Group. “But what many individuals underestimate is that AI and quantum computing can have the biggest impact on healthcare.” Increased drug discovery The health care dispute boils right down to several aspects, including the improvements made in drug discovery. In line with a June memo from Morgan Stanley, a 2.5 percent increase in early-stage success rates could mean a virtually 10 percent increase in recent drug approvals over the next decade. In actual fact, the Wall Street firm expects that 60 additional drugs developed over 10 years could have a further $70 billion in net present value (NPV) for the biopharmaceutical sector. NPV calculates the present value of a future payment stream from a project or investment. “Higher likelihood of success and shorter cycle times could improve investor perceptions of Biopharma business sustainability/revenue and shut the P/E valuation gap” relative to higher value sectors, reads the Morgan Stanley memo. Morgan Stanley highlighted several biopharmaceutical firms that could profit from this trend, including pharmaceutical giants Johnson & Johnson, Merck and Pfizer, all three of which collapsed in 2023. The bank also listed US-listed shares in Exscientia, a UK-based company that designs and discovers possible drugs using artificial intelligence. Cox added that considered one of the neglected beneficiaries of healthcare and AI can be Amazon, which he called a “dormant” selection for investors. Already up 55% this yr thanks partially to AI enthusiasm, Amazon has a thriving pharmaceutical and first care business. This yr, it closed a $3.9 billion deal for primary care provider One Medical. In 2018, Amazon bought PillPack for $750 million and launched its own online pharmacy. “This is an organization that is heavily focused on automation and efficiency, and accruing productivity growth is not well understood at this point,” Cox said. The investor also listed Rockwell Automation as considered one of its stock picks that could profit from AI in healthcare. Industrial resources have already increased by over 25% this yr. More recently, Mizuho said Rockwell is also acting as a “reshoring” game, with returning manufacturing to the U.S. UnitedHealth Group was one other stock pick that Cox said would profit from integrating AI into healthcare. “The healthcare decade is coming,” Cox said. “Loads of this is resulting from the research and development that took place during the pandemic, but one other part is that AI components will actually profit healthcare greater than even technology.”