Nvidia and a FTSE 100 fund own a 10% stake in this $8 artificial intelligence (AI) stock

Ben McPoland explores Recursion Pharmaceuticals (NASDAQ:RXRX), an up-and-coming AI firm held by Cathie Wood, Nvidia and one FTSE 100 trust.

| More on:
man in shirt using computer and smiling while working in the office

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

What have Nvidia and the FTSE 100 got in common? Well, not much in all fairness. But the leader in artificial intelligence (AI) computing and the Footsie’s Scottish Mortgage Investment Trust do both have investments in Recursion Pharmaceuticals (NASDAQ: RXRX).

Between them, they own around a 10% stake in this little-known AI innovator. Meanwhile, famed growth investor Cathie Wood of Ark Invest is also a big fan. Indeed, Ark is actually Recursion’s largest shareholder.

Here’s what investors need to know about this $8 stock.

Biology meets AI

Founded in 2013, Recursion uses big data and machine learning to target a faster, cheaper and better approach to discover medicines. The firm says it is “decoding biology to industrialise drug discovery“.

It uses both public and its own 23 petabyte dataset (which is massive) to discover new compounds and viable candidates to treat rare diseases and certain cancers.

Because its AI replaces human interpretation and dramatically lowers costs, this means it can pursue minor diseases that have been overlooked in the past because they weren’t commercially viable.

For example, it currently has five treatments in phase 2 clinical trials. But each of those will treat an initial patient population between 50,000 and 730,000. That’s small.

If successful though, it will be the only firm serving these markets. There are potentially dozens of such diseases where it could have no competition.

It also licences its platform to other drugmakers and has partnerships with industry giants Roche and Bayer.

Basically then, the aim here is to dramatically lower the costs and time associated with failed drug candidates.

Co-founder and CEO Chris Gibson said its “failure is happening in the first six hours or the first six weeks of the first six months, as opposed to happening six years down the road in Phase 2 or Phase 3.”

Nvidia partnership

Nvidia’s visionary CEO Jensen Huang recently said: “Where do I think the next amazing revolution is going to come? There’s no question that digital biology is going to be it.”

Huang says AI will move biology from science to engineering. And when that happens it becomes “exponentially improving, it can compound on the benefits of previous years.”

As part of its Nvidia link-up, Recursion will add more than 500 Nvidia H100 GPUs to its BioHive-1 supercomputer. Once complete, the firm reckons this will be the most powerful supercomputer owned by any biopharma company.

Recursion does up to 2.2m experiments every week. I’d imagine this upgraded BioHive-1 will take that to another level.

Reality check time

Now, I do have a very small position in this stock. But it’s just to get some skin in the game.

Today, the firm’s primarily making money through its collaborative agreements with drugmakers ($44m last year). It’s likely years away from any profits but has a $2bn market-cap. So this is a risky stock, for sure.

Meanwhile, it ended 2023 with $392m in cash. That’s enough for now but more may be needed in the next couple of years. That could cause share price volatility.

Still, when Nvidia, Scottish Mortgage, and Wood all invest in a particular AI stock, it’s worth taking note. It could be a massive long-term winner, or not. So a small holding is all I want.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Ben McPoland has positions in Recursion Pharmaceuticals and Scottish Mortgage Investment Trust Plc. The Motley Fool UK has recommended Nvidia. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Here’s how I’d target a £5,900 second income by investing £50 a week

We don't need a huge pile of cash to earn a second income. Here's one way I'd aim for it…

Read more »

Grey cat peeking out from inside a cardboard box in a house
Investing Articles

Recently released: May’s small-cap stock recommendation [PREMIUM PICKS]

We believe the UK small-cap market offers a myriad of opportunities across a wide range of different businesses and industries.

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

I’m listening to Warren Buffett and buying bargain shares!

Our writer has been taking lessons from the investing career of Warren Buffett. Here's how he's using it to try…

Read more »

Close-up of British bank notes
Investing Articles

Here’s how I’d spend £6,900 on income shares to try and earn £500 per year

Christopher Ruane outlines some of the investment principles he'd apply when trying to earn £500 of dividends annually by spending…

Read more »

Newspaper and direction sign with investment options
Investing Articles

My 3 picks for the best UK shares to buy in June

Mark David Hartley is bullish about the UK stock market right now. He reckons these are the three best shares…

Read more »

Young Asian man drinking coffee at home and looking at his phone
Investing Articles

23% per annum: is this FTSE 250 stock too good to turn down?

FTSE 250 constituent Games Workshop has posted an impressive return over the last five years. This Fool takes a closer…

Read more »

Arrow symbol glowing amid black arrow symbols on black background.
Investing Articles

Up 60% in a month, could this UK share keep soaring?

After this UK share surged by almost three-fifths in a matter of weeks, this writer has been re-examining the investment…

Read more »

Young brown woman delighted with what she sees on her screen
Investing Articles

I’m up 25%! The Nvidia share price and other giants power this UK investment trust

I drip-fed some money into this not-so-buoyant UK investment trust and now the Nvidia share price is helping to drive…

Read more »