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Health-tech companies are rapidly embracing Artificial Intelligence (AI), but investors seem to be taking longer to catch on.

The share prices of AI-related small caps began moving upwards in September, following the rest of the market, according to a report by Morgans analyst Scott Power.

But biotechs that use AI or machine learning stayed relatively flat, following a bounce in August. (See table below)

“We have not yet seen a resultant rally in the basket of stocks as investors appear to be waiting on a number of companies to reach critical inflection points of initial revenues or regulatory validation of their technology,” Mr Power wrote.

Morgans counts 12 small caps generally and 17 biotechs that use AI or machine learning — a less advanced version of AI where the machine learns from patterns in data.

Mr Power says he’s seeing a lot of interest in medical services companies that use AI, such as diagnostics businesses Capitol Health (ASX:CAJ), Volpara Health Technologies (ASX:VHT), ResApp (ASX:RAP), and Impedimed (ASX:IPD).

But just a handful are so far benefiting from a tech-related bounce.

Brain health and wellness platform Brain Resource (ASX:BRC), health data collator Mach7 Technologies (ASX:M7T) were supported by investors in late November. They were up 54 and 68 per cent respectively.

Forrest Capital’s Anton Uvarov says the whole biotech sector is flat this year because of investor fascination with miners and tech stocks.

“It comes and goes in cycles, and at the moment the cycle is mining. When mining and tech is up-and-running it’s really hard to do anything else,” he told Stockhead.

“With biotechs you have to wait for a much longer time to get anything out of it. Biotech is good when the market is struggling and people switch back to fundamentals.

“But now people are looking for quick money. Now the market is all about short-term.”

Health stocks to gain in 2018

Mr Power says they’re trying to identify the next wave of investor interest, and suspects health companies will be next.

“It’s still a little bit under cover, but it’s certainly emerging,” he told Stockhead.

“There’s been a lot of interest in mining stocks and when people make money they look for the next area of interest. That’s probably turned into the tech side of things, and now you’ll see more and more interest coming into some of the emerging healthcare and life sciences companies.”

Mr Power sees AI being used in a pay-per-test model in the medical field, where each patient
is charged a fee for an AI-related service, such as a test or diagnosis.

“AI used for personal health management is likely to generate revenue through the purchase of an app or subscription to a health service.

“AI will see more emphasis placed on predictions and preventative care, with intelligent insight and automation being offered as a service.”