The $50 million acquisition could be Nvidia's biggest investment yet.
Nvidia (NVDA 6.18%) is not only a leader in the major hardware developments driving the artificial intelligence (AI) boom. The company is a major investor in his other AI companies, and often includes equity investments in business relationships. In December, the company's AI stock portfolio passed the $100 million threshold, requiring it to file a Form 13-F with the SEC disclosing all of its holdings.
Nvidia's portfolio is not very extensive, containing just five stocks, with 97% of the portfolio concentrated in just two holdings.
The largest part of Nvidia's portfolio is ARM Holdings, a chip architecture company that the AI ​​giant tried to acquire for $40 billion in 2020. In the end, you ended up with a stake worth $190 million at current prices, a tiny fraction of a $100 billion company.
Nvidia's second-largest holding represents a more significant stake in the innovative AI company. The company has also been favored by Cathie Wood's Ark Investments, which bought more shares earlier this month, further increasing its position as the company's largest shareholder. Importantly, investors can still invest in NVIDIA's stock at close to the same level they invested in last July. It's no wonder Wood and her team have been buying up stocks lately.
Nvidia's second largest holding is 3.4%. recursion medicine (RXRX 3.57%). The company uses his AI to mine data and discover potential new drugs. And if it succeeds in developing a breakthrough drug, it could easily become Nvidia's biggest investment yet.
Leverage AI to act faster and reduce costs
Recursion is a biotechnology company that leverages big data and AI to improve the drug discovery process. Discover new potential compounds by combining public datasets with your own proprietary data. Algorithms are then used to filter the compounds to viable candidates for development to treat rare diseases or precisely target specific cancers.
Recursion says its process reduces the number of development candidates from initial screening to less than 10% of traditional drug discovery companies. This allows you to focus only on the options with the highest chance of success, reducing spending and allowing you to move faster.
Five treatments are currently in phase 2 clinical trials. Each treats less than 1 million patients, and most treat populations less than 100,000. This means that if they succeed in bringing one of these treatments to market, they will likely be the only competitor serving that population.
If Recursion can prove that its method is consistently more successful, faster, and more cost-effective than other methods in the industry, many opportunities will arise. Not only can we continue to discover and develop new treatments, but we can also license our platform to other pharmaceutical companies working on more complex areas. This can provide you with upfront capital to expand your business.
The company already has a partnership Roche and bayer Helping discover oncology targets and neuroscience therapies.
Should you invest in Nvidia and Cathie Wood?
An investment in Recursion is a big bet on whether the company's process will yield a viable drug outcome.
The company currently generates revenue primarily through collaborative agreements with other pharmaceutical companies. This generated a total of $44 million for the company last year, up from $40 million in 2022.
Meanwhile, the company is running out of cash as it works on drug discovery and development while building its AI platform. Research and development expenses last year increased to $241 million from $156 million the previous year. And total operating loss increased from $246 million to $350 million.
The company ended last year with $392 million in cash on its balance sheet, giving it some runway. However, it will likely need to raise more cash in the near future to continue funding its operations. This is likely to be achieved through equity investments, which could dilute shareholder stakes.
All of this makes Recursion a risky investment. However, the rewards can be huge. It is a relatively small company with a market capitalization of $1.85 billion. That's a significant drop from the pharmaceutical industry as a whole, which had sales of about $1.6 trillion last year.
For investors looking for a home run stock, Recursion isn't a bad company to invest in. Nvidia backs the stock along with several other members of his AI and pharmaceutical industry, and Cathie Wood calls it one of his largest holdings in his genomics-focused ETF. is. But you can also swing and miss.
Adam Levy has no position in any stocks mentioned. The Motley Fool has a position in and recommends Nvidia. The Motley Fool recommends Roche Ag. The Motley Fool has a disclosure policy.