Kathy Wood is buying this under-the-radar AI stock.

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Many well-known names on Wall Street are quickly acquiring shares of the most prominent artificial intelligence (AI) companies, including Nvidia And the alphabet, among other tech giants. While these market leaders are attracting most of the AI ​​center's attention, there are smaller players in the field, e.g Recursion Pharmaceuticals (NASDAQ: RXRX ).

This mid-cap biotech uses AI in an innovative way (more on that below). This has attracted the attention of one notable player on the street: Cathy Wood, CEO of ArchInvest. Let's look at what makes this stock interesting.

Betting on the genomic revolution

ArcInvest explores the disruptive technologies that are shaping the future. One of them is actively managed Exchange Traded Funds (ETFs), ARC's Genomic RevolutionTargets companies seeking to improve quality of life through scientific innovation.

Cathy Wood and her team have added Recursion Pharmaceuticals shares to ARK Genomic Revolution several times over the past few months. On April 2, he bought a little more than 174,000 shares of the company, the most he has added to ARKG in one stroke this year.

Recursion currently makes up 5.7% of the ETF, ranking third in portfolio weight.

How does this small biotech company play into the AI ​​and genomic revolution themes? The company is looking to use AI to speed up the drug discovery process. Drug makers must go through a grueling, expensive, long and dangerous process to launch their drugs. Many that enter clinical trials never receive regulatory approval, and some that do never generate enough revenue to cover the costs of their development.

Recursion developed an AI-powered operating system (OS) that tests how various medical compounds might interact with the human body in an automated laboratory — based on 2.2 million weekly experiments. The approach allows Recursion to advance only compounds that look highly promising to clinical trials, potentially increasing the likelihood that they will make it to market.

If Recursion Pharmaceuticals' OS works as intended, not only will the company be faster than its competitors in launching successful drugs — an incredibly important factor in the industry — but it will allow others to use its OS. It will also be able to grant licenses. Further, Recursion Pharmaceuticals OS may create a network effect. Whether the compounds it chooses after the tests run by its OS are successes or failures, this can allow it to fine-tune its algorithm, resulting in more accurate results over time.

Should investors follow Wood's lead?

Recursion Pharmaceuticals is still a clinical-stage biotech. Translation: The company's approach has yet to produce marketed treatments. However, it has attracted the attention of some major players in the industry, including those based in Switzerland Roche, which plans to collaborate with Recursion to discover cancer drugs. Clearly, the biotech looks promising, but is that enough to buy the stock?

Since Recursion Pharmaceuticals has yet to show solid results, the stock should be subject to considerable volatility as more clinical and regulatory developments unfold. At this point, whether this development will be positive or negative is anyone's guess. A company's shares can either skyrocket or fall off a cliff, which makes it very risky. We should know more by the end of the year.

Recursion expects several data readouts, including a Phase 2 study for REC-994, a potential treatment for cavernous malformations. The biotech expects to release data by the third quarter of 2024. Recursion is also conducting a Phase 2/3 study for REC-2282, an investigational treatment for neurofibromatosis (a genetic disease that can cause tumors) type 2, with some data expected. fourth quarter.

Even if these produce positive results, at best they will still be two years away from launch. Therefore, investors should proceed with caution. Recursion Pharmaceuticals makes up 1.77% of Ark Invest's total ETF holdings. Biotech should not make up a huge portion of anyone's portfolio, even aggressive investors.

Should you invest $1,000 in Recursion Pharmaceuticals now?

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Suzanne Frey, an Alphabet executive, is a member of The Motley Fool's board of directors. Prosper Junior Bakiny has no positions in any of the stocks mentioned. The Motley Fool has positions and recommends Alphabet and Nvidia. The Motley Fool recommends Roche Ag. The Motley Fool has a Disclosure Policy.

Cathy Wood is buying this under-the-radar AI stock originally published by The Motley Fool.

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