Of all the discussions, agreements and questions surrounding the virtues and evils of artificial intelligence, few will debate the positive contribution AI is having on healthcare in its many forms. If there was ever an industry or segment of society that needs a top-to-bottom overhaul, it is the business of health and the burgeoning costs of operating what is a highly fragmented and poorly executed system.
This past week, there was some notable rotation into the healthcare space led by a rebound in Dow component United HealthGroup Inc. (UNH) after it was reported that Warren Buffet’s Berkshire Hathaway bought 5.04 million shares valued at roughly $1.57 billion. With UNH stock down around 50% in Q2, Buffet and his team saw real value.
As to whether it works out, only time will tell, but this purchase did wake up the sector that has sorely lagged behind most of the other ten market sectors for over a year. Knowing full well the intentions of the Trump administration to drive down pharmaceutical costs, one would expect that sub-sector to continue to be on the receiving end of bearish sentiment. But there are several other areas of healthcare that are rapidly adopting and applying AI to enhance research, products and services.
Some of the positive transformations underway include improved diagnostics where AI algorithms can detect diseases like cancer, strokes and fractures with high accuracy. In radiology, AI often outperforms humans in interpreting MRIs and X-rays. AI models streamline drug discovery by analyzing vast datasets, reducing time and cost.
AI enables remote diagnostics and telehealth, helping underserved populations receive care. Machine learning tailors therapies based on patient data, improving outcomes and reducing trial-and-error. AI-powered scheduling tools predict staffing needs, improve retention and AI supports early screenings and risk assessments, such as cardiovascular disease prediction.
The Global Industry Classification Standard (GICS) organizes healthcare into two major industry groups:
Healthcare Equipment & Services
- Equipment & Supplies
- Providers & Services
- Healthcare Technology
Pharmaceutical, Biotechnology & Life Sciences
- Pharmaceuticals
- Biotechnology
- Life Sciences Tools & Services
There are now several AI-driven stocks of leading companies that are quickly monetizing AI in pursuit of their corporate goals and objectives. AI in surgical video analytics and cardiac diagnostics are making significant strides. AI in imaging and device optimization is also seeing tremendous advancements. AI in diagnostics and lab automation is boosting R&D efforts while driving down costs and radically shortening timelines. AI in imaging and patient monitoring and processing genomic data is bringing new meaning to the phrase “precision medicine.”
So, while the war on big drug companies and high-priced pharmaceuticals get most of the media’s attention because of political and PAC money influence, AI is reshaping medicine and healthcare in numerous ways that are having an immediate impact on patient care and the top and bottom lines of companies that have taken the necessary steps to make the greatest use of AI in their business models.
I think the investment community is starting to weigh out where AI is having a seriously bullish impact on various stocks and it might be worth it to explore the holdings of a few healthcare ex-pharmaceutical ETFs whose top holdings are invested in the most cutting-edge AI-driven medical products and services. They include iShares U.S. Medical Devices ETF (IHI), SPDR S&P Health Care Equipment ETF (XHE) and First Trust Health Care AlphaDEX Fund (FXH) among others.
Sector rotation is vital to positioning one’s portfolio so as to be in the way of bullish fund flows. Rising volume drives stocks and ETFs higher. Getting in the way of a rising tide of positive money flow is one of the most consistent ways to generate profits and limit losses. It’s called respecting the tape. The right kind of healthcare exposure has a place in growth portfolios — especially when the sector is highly defensive in nature, as healthcare tends to be.
As long as investors are seeking growth within the healthcare space in companies that are not in the crosshairs of Trump and JFK, then opportunities abound. It is one way to effectively broaden out AI exposure to portfolios without having to be concentrated in only big-cap tech — and last week’s price action for healthcare might just be the beginning of a fresh new uptrend that deserves some immediate attention.
