In the ongoing artificial intelligence (AI) revolution, Nvidia (NASDAQ:NVDA) stands out as a trillion-dollar chip designer leading the charge. Its upcoming quarterly earnings report is anticipated to not only the broader semiconductor industry but also the entire stock market. Therefore, when Nvidia allocates a staggering $76 billion investment into a single small company, investors keen on growth take notice.
While Nvidia’s previous investments in smaller AI chip stocks grabbed headlines, the recent $76 billion bet outside the semiconductor sector holds significance for another reason. The move underscores Nvidia’s substantial investment in a stock also held by Cathie Wood’s flagship fund. Interestingly, Nvidia’s commitment surpasses Wood’s, as her ARK Innovation ETF (ARKK) holds just 13.5 million shares valued at approximately $170.3 million.
So, why is Nvidia significantly increasing its stake in this Cathie Wood-backed stock? Let’s delve deeper into Recursion Pharmaceuticals.
Overview of Recursion Pharmaceuticals
Founded in 2013 by former Rice University Ph.D. graduates Christopher Gibson and Blake Borgeson, Recursion Pharmaceuticals (NASDAQ:RXRX) is based in Salt Lake City. The clinical-stage biotech company aims to revolutionize drug discovery through data science and automation, expediting the development of new treatments.
RXRX currently boasts a market cap of $2.72 billion and holds the 19th position in ARKK, accounting for approximately 2.17% of the fund’s weight. Additionally, it is a component of the Russell 2000 Index (RUT).
Recursion Pharma’s stock has surged by 23.9% year-to-date, outperforming the broader market. Last week, news of Nvidia’s substantial investment further fueled the stock’s momentum. Nvidia had previously announced a collaboration with Recursion to expedite the training of the drug company’s AI models for drug discovery.
Recursion’s Financial Outlook
Despite Recursion’s lack of profitability, it remains a growing biotech player. In its latest quarterly results, the company reported a wider-than-expected loss, attributed partly to increased operating costs, particularly in research and development.
Recursion ended the September quarter with a cash balance of $397 million, with long-term liabilities remaining relatively stable.
The company is set to report earnings on Feb. 26, with analysts expecting a per-share loss of $0.46 for the fourth quarter.
Partnership with Nvidia and Future Prospects
Recursion’s partnership with Nvidia aims to develop BioHive-1, an on-premise supercomputer slated to become the most powerful in the biopharma industry. Additionally, Recursion’s proprietary RecursionOS, combined with its vast data set and AI capabilities, positions the company for significant advancements in drug discovery.
Furthermore, Recursion is developing its LOWE drug discovery software in collaboration with Nvidia, which can potentially be monetized beyond in-house use.
Recursion’s partnership with Bayer has also been upgraded, promising increased per-program milestones and royalties on net sales.
Analysts’ Outlook on RXRX Stock
Forward revenue growth for RXRX is expected to be robust, significantly exceeding the healthcare sector median. However, with shares priced at 55 times forward revenue, they carry a premium valuation.
Despite this, analysts hold a somewhat optimistic view on Recursion stock, with an average rating of “Moderate Buy.” However, the mean target price suggests limited upside potential from current levels.
Featured Image: Megapixl
Author Faith Yakubu 
