Generally, it appears that companies that have developed artificial intelligence systems based on specialized data are better positioned than those with AI systems based on more generalized data. Therefore, I recommend buying AI stocks whose companies have developed more particularized systems.
Two stocks illustrate this point exceptionally well: Palantir (NYSE:PLTR) and Upstart (NASDAQ:UPST). Palantir’s AI appears to be based on generalized data, in the sense that it seems to focus on using all types of data from many fields
Palantir, after about 18 years of existence and despite generating nearly $1.1 billion of sales last year, still is pretty far from profitability; its 2019 operating income was -$553 million and its 2020 operating income was -$1.17 billion
Palantir’s platforms seem to focus on integrating and analyzing data and finding outlying behaviors and scenarios, along with “unseen links,” in many fields.
Upstart has developed AI tools focused on determining whether borrowers are creditworthy. Founded in 2012, its operating income was nearly $22 million in 2019, almost $20 million in 2020, and, over the 12 months that ended in June, its operating income jumped to $80.7 million.
The idea that Upstart’s product is more valuable makes sense. That’s because an AI tool could likely be developed based on generalized data and concepts relatively quickly and inexpensively. In that situation, the platform just has to be taught how to look for data patterns.
Obtaining and integrating sufficient quality data from a specific field to make a system that’s an “expert” in a certain area is way more complex. That’s both because it takes much more time to gather and integrate the correct data points and because much more particular scenarios are involved.
Therefore, these four specialized AI stocks that are worth buying now:
AI Stocks to Buy: Upstart (UPST)
Not only has Upstart become profitable, but its revenue is growing extremely rapidly, showing that its product is becoming more and more widely used among lenders. In fact, in the second quarter, its top line came in at $187.3 million, up from just $13.3 million during the same period a year earlier. In Q1 of 2021, its revenue soared to $116.2 million, up from $68 million a year ago.
Indeed, the company now has roughly 25 banks and credit unions in its customer base, versus just 10 at the end of last year.
As others have pointed out, Upstart’s product is especially attractive to small- and-medium-sized banks that cannot afford to build, maintain and update their own AI systems.
Upstart CEO Dave Girouard recently told CNBC that the company’s pipeline is strong, while it’s at the “very early stages of proving out the concept of artificial-enabled lending,” He predicted that Upstart would have “hundreds” of banks and credit unions on its platform.
iCAD (ICAD)
Using AI technology, the company has developed a product that detects breast cancer. ICAD has had multiple products approved by the FDA, including its ProFound AI Version 3.0 for Digital Breast Tomosynthesis (DBT) that is used in 3D mammographies, which received the nod earlier this year.
In March, iCAD noted that, “ProFound AI for DBT Version 2.0 was shown to offer clinically proven time-savings benefits to radiologists, reducing reading time by 52.7 percent, improving radiologist sensitivity by 8 percent, and reducing false positives and unnecessary patient recall rates by 7.2 percent.”
The company reported that the product’s third version “offers up to a 10% improvement in specificity performance and up to 1% improvement in sensitivity. ProFound AI Version 3.0 also offers up to 40% faster processing on the new PowerLook platform.”
ICAD is also developing Xoft, a brain cancer treatment that the company has said it expects to be meaningfully more lucrative than Profound AI for DBT. Xoft has been cleared by the FDA, and iCAD says that it “uses a miniaturized X-ray source to deliver a precise, concentrated dose of radiation directly to the tumor site while minimizing the risk of damage to healthy tissue in nearby areas of the body.”
During the company’s Q2 earnings call, CEO Michael Klein reported that it was benefiting from increased interest in its products among large enterprises.
AI Stocks to Buy: Schrodinger (SDGR)
Schrodinger’s AI-based system, which also incorporates physics-based technology, according to the company, enables the drug creation process to be much shorter and cheaper. Using standard tools, the drug development process is currently extremely long and expensive.
Schrodinger says that its product enables companies to choose the best molecule to develop into a drug, versus standard tools that identify a high-quality molecule. Its platform lowers the molecule testing process to two to three years from four to six years.
The company is partnering with many drug makers to develop over 20 therapies. It will receive royalties from the therapies created by these alliances; so far, two of the oncology drugs developed with its technology has been approved by the FDA, and a drug for metabolic diseases created with its help is in Phase 2 trials.
Among its partners are three huge drug makers: Sanofi (NASDAQ:SNY), Takeda (NYSE:TAK) and Bristol-Myers Squibb (NYSE:BMY). Under its deal with the latter company, Schrodinger can receive up to $2.7 billion. The company is also developing its own drugs, although none of them has yet reached clinical trials.
On Aug. 4, Yahoo Finance reported that Bill Gates owned nearly 7 million shares of Schrodinger. making it one of his top 10 holdings. The company expects 2021 revenue of $124 million to $142 million, versus $108 million in 2020 and $85,5 million in 2019, making it one of the top AI stocks to buy.
Remark Holdings (MARK)
Using its facial recognition and AI technology, Remark has developed applications for retailers and schools.
For retailers, its system, called Kankan, immediately analyzes customer shopping behavior and uses the information to design and provide loyalty rewards. It can also identify consumers who have previously been in given stores, venues, or websites and then use that data to market related offers to them.
For schools, the product evaluates students’ health, and automatically takes their attendance and temperature.
In December, Remark announced that a top commercial bank in China would implement Kankan at 169 of its branches. As of Aug. 23, the product was deployed in over 250 schools. It’s also won major deals with China Mobile and one of the Asian country’s major airlines.
Remark currently has about 9.5 million shares of Sharecare (NASDAQ:SHCR), a telehealth company. According to my calculations, that stake is worth over $71 million as of the morning of Aug. 30. With MARK stock trading at a market capitalization of $130 million, investors are valuing its business at just (roughly) $60 million. Remark has not specified when it plans to monetize some or all of its stake in Sharecare.
In Q2, Remark’s sales came in at $4 million, up from $2.3 million during the same period a year earlier. For Q1, Remark’s revenue was $4.4 million, versus just $300,0000 in the year-ago period.
On the date of publication, Larry Ramer held long positions in iCAD, Schrodinger, and Remark.
Larry has conducted research and written articles on U.S. stocks for 14 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Among his highly successful contrarian picks have been solar stocks, Roku, and Snap. You can reach him on StockTwits at @larryramer. Larry began writing columns for InvestorPlace in 2015.
