Confirming the ongoing fervor for all things artificial intelligence (AI), shares of biotechnology firm Recursion Pharmaceuticals (NASDAQ:RXRX) are soaring on Wednesday. What has catalyzed the massive double-digit swing for RXRX stock? Well, Nvidia (NASDAQ:NVDA) just invested $50 million to “boost Recursion’s drug-discovery companies.”
Prior to today’s announcement, RXRX stock sat in negative territory for the year. Now, at the time of this writing, shares are up more than 50% year-to-date (YTD). As The Wall Street Journal points out, earlier this morning, Recursion added nearly $1 billion to its market capitalization.
As Bloomberg reports, the rally in RXRX stock is a sign that AI hype has finally begun to shift into the biotech sector, which badly needs the enthusiasm. According to Keybanc analyst Scott Schoenhaus, the agreement between Recursion and Nvidia represents “a meaningful validation step for the AI to drug/molecule development space in general.”
On the technical front, Bloomberg also points out that RXRX has received interest from short sellers. Fintel notes that RXRX’s short interest stands at 13.44% of its float. Its short interest ratio clocks in at 14.05 days to cover.
Risks and Rewards for RXRX Stock
Why has RXRX stock jumped so high on news of Nvidia’s investment?
The upside potential for biotech enterprises integrating AI and machine learning (ML) protocols primarily centers on accelerated processing capabilities. Advanced algorithms can crunch datasets without skipping a beat, theoretically decreasing the time between hypothesis and commercialization.
In addition to shorter drug development timelines, AI and ML may also help lower costs. Essentially, rather than fumbling around with pathways that eventually lead to scientific dead ends, digitally intelligent solutions could help focus efforts toward initiatives with the greatest probabilities of success.
For RXRX stock, which has suffered sharp losses against a long-term framework, AI may put the underlying company on the right track again. Still, investors need to be aware of separating the sizzle from the steak.
As the U.S. Food and Drug Administration (FDA) mentioned in a recent discussion paper, AI/ML should be used to “facilitate innovation while protecting public health.” Additionally, on the technological side, AI also still greatly depends on data. Without data — in particular ample data — it can be easy for inaccuracies to materialize.
And that’s the rub. Because digital intelligence alone does not eliminate the problem of inaccurate or incomplete data.
All told, while fundamentally compelling, investors need to recognize both the pros and cons before proceeding with RXRX.
On the date of publication, Josh Enomoto did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
