There’s a perception that the US has all the high-growth technology stocks in the US and that UK tech shares tend to be bought by overseas companies. For example, SoftBank bought ARM Holdings back in 2016. And now Nvidia is taking it over. However, the UK does have listed technology shares.
One of these shares is artificial intelligence company RenalytixAI (LSE: RENX). The share price has leapt recently, which raises the question: could the shares rocket further or are they now too expensive?
What does the company do?
First of all, let’s look at what it does. RenalytixAI provides artificial intelligence-based diagnostics for kidney disease through its KidneyIntelX platform. The algorithm combines data in order to provide a patient risk score which then helps doctors treat patients better.
It has a niche which is actually quite a large addressable market, especially in the US. Chronic kidney conditions there affect 15% of adults or 37m people. This costs Medicare over $120bn per year.
Obviously, the problem stretches beyond the US and is global, so there’s a huge potential market for an AI diagnostics tool to help doctors.
Why has the share price risen and what’s the opportunity for future growth?
I think it’s the potential for the company to get approval from the US Food and Drug Administration (FDA) that is boosting the shares. Approvals to sell its tests at $950 a time to healthcare facilities across the US could be transformative for the company, which makes no revenue for now. An update is expected within the coming months, hence the share price leap.
Beyond the immediate prospect of the FDA announcement, the AI company has partnerships with AstraZeneca and Mount Sinai in the US. The latter is a joint venture for a Covid-19 test, which could be rolled out globally. That could be another source of revenue in the future.
Longer term, if RenalytixAI can roll out successfully across the US there could be huge opportunities in other international markets. Also in the future, there will almost certainly be more chances to apply artificial intelligence to other healthcare problems. Once the technology is accepted and trusted there will be a lot of other opportunities to cut healthcare costs and improve outcomes for patients. Spending on solutions at that point should accelerate quickly.
What will I do with this UK tech share?
For now when it comes to the share price, I’ll wait and see. When a share price rises this much in such a short space of time there’s certainly more risk. I worry I may be late to the party and arrive just as the share price starts to revert back towards more usual levels.
I’ll add the UK tech share to my watchlist and see what happens next. It’s possible, of course, the FDA might not rule in favour of RenalytixAI, or other operational hurdles may appear. That’s why I remain quietly optimistic, but also cautious.
