1 Artificial Intelligence (AI) Stock That Could Soar in 2025

The artificial intelligence (AI) field has been grabbing many headlines on Wall Street in the past two years. Will this trend continue in 2025? It's hard to say, but whether or not it does, specific AI-focused companies could make significant progress and see their shares soar as a result.

Recursion Pharmaceuticals (NASDAQ: RXRX) could be one of them. The AI-focused biotech has several potential catalysts next year. Let's figure out whether investing in Recursion Pharmaceuticals ahead of 2025 is worth it.

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Some background on Recursion Pharmaceuticals

Recursion Pharmaceuticals uses AI to speed up the drug discovery and development process. The company's virtual lab runs experiments to identify promising clinical compounds to send to human clinical trials. For a typical drugmaker, most brand-new compounds will never enter the clinic to be tested on humans. Most of those that do will never go on to earn approval.

If Recursion's approach can help increase the odds on both fronts, the company could launch medicines much faster than its competitors and at much lower costs.

It's not hard to see the potential. Further, Recursion Pharmaceuticals has gotten a major vote of confidence from the hottest AI company on Wall Street: Nvidia. The two collaborated to build the most powerful AI supercomputer in the pharmaceutical industry, which means more computing power, a larger data set, and more virtual experiments for Recursion Pharmaceuticals. Nvidia also made an equity investment in the drugmaker.

Recursion Pharmaceuticals is onto something, but the company still has no drug on the market. It could get a bit closer to that goal next year.

Multiple potential catalysts on the way

Recursion recently shared encouraging results from two clinical trials. In September, the company announced that REC-994 met its primary endpoint of safety and tolerability in patients with symptomatic cerebral cavernous malformation (CCM), a rare condition characterized by the formation of enlarged blood vessels in the brain. In some cases, CCM can lead to life-threatening issues.

More recently (earlier this month), Recursion released interim data from a phase 1/2 study for REC-617 in advanced solid tumors. Besides encouraging safety data, the biotech noted that patients seem to be responding to the treatment, with one experiencing a durable (more than six months) partial response to the therapy. This patient suffers from ovarian cancer and, despite previously undergoing four lines of therapy, had continued to progress.

Four other patients saw some improvements, too, according to Recursion. It's far too early to celebrate these results, but they are encouraging. Next year, Recursion will release more data from ongoing clinical trials. It is testing REC-4881 in familial adenomatous polyposis (a rare condition that leads to colorectal cancer) and advanced cancers with AXIN1 or APC protein mutations. The biotech expects to post data for both trials sometime next year.

Recursion Pharmaceuticals should have at least two more data readouts, one for REC-3964 as a potential treatment for a bacterial infection and REC-1245, another potential cancer treatment. Positive results in just one of those clinical trials might not be that big a deal. However, if the company can consistently post encouraging results across the range of its pipeline, investors might take notice and bid up the stock price.

The long-term view

There is nothing like clinical or regulatory wins to jolt a biotech's stock. However, even if Recursion Pharmaceuticals performs well next year, will that make it worth investing in? The company has yet to start a phase 3 study, although it should do so relatively soon. It will be a while before it can launch a drug on the market.

The good news is that it won't have to worry about funding, at least for a while. Recursion Pharmaceuticals has entered collaboration agreements with such pharmaceutical giants as Bristol Myers Squibb and Roche.

It ended the third quarter with $427.6 million in cash and equivalents, which isn't bad for a biotech worth $2.77 billion. That said, even if Recursion Pharmaceuticals' shares perform well in 2025, the stock will remain somewhat risky, although it will be less so as it moves its programs to late-stage studies. Its platform has yet to yield a single commercial victory, and though Recursion claims its AI approach can cut the time and costs associated with the process of developing drugs, it won't prove that claim next year.

Recursion Pharmaceuticals' approach looks promising. If its master plan comes to fruition, the stock has massive upside potential. That said, there is also plenty of risk involved, more than risk-off investors will want to deal with. Those comfortable with heightened volatility may consider initiating a small position.

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Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bristol Myers Squibb and Nvidia. The Motley Fool recommends Roche Holding AG. The Motley Fool has a disclosure policy.