To The Moon

Stocks are coming off a positive week despite their wild ride amid the Trump administration’s tariff developments.

$S&P 500(.SPX)$ gained 5.70%, its best weekly performance since Nov. 3, 2023, when it gained 5.85%, and first positive week in three. $Dow Jones(.DJI)$ jumped 4.95%, and $NASDAQ(.IXIC)$ rose 7.29%.

Considering the different perceptions of the stock, this time TigerPicks chose $Recursion Pharmaceuticals, Inc.(RXRX)$ to have a fundamental highlight to help users understand it better.

$Recursion Pharmaceuticals, Inc.(RXRX)$

Recursion Pharmaceuticals, Inc. operates as a clinical-stage biotechnology company, engages in the decoding biology by integrating technological innovations across biology, chemistry, automation, data science, and engineering to industrialize drug discovery.

In February this year, Recursion stock jumped from ~$7 per share, to >$10 per share, which seems to have coincided with its Q4 and full-year earnings announcement, before rapidly plunging to its lowest ever price.

Based on this volatility, this feels like a good time to take another look at Recursion and speculate about whether recent volatility may be converted into longer-term upside momentum, or whether it may be necessary to double down on the “Sell” call.

Recursion – Q4 FY24 Earnings Recap

The company reported operating revenues of $58.8m, against $44.6m in the prior year. Operating costs and expenses came to an eye-watering $538m, up from $395m in the prior year, with $314m of R&D costs and $178m of G&A costs, and Recursion recorded a net loss of $464m, or $1.69 per share, versus $328m, or $1.58 per share, in the prior year.

The company reported $594m of cash off at the end of 2024, up from $392m at the end of 2023. Current liabilities were reported as $187m, and total liabilities, $414m. The accumulated deficit stood at $1.43bn.

To show for its heavy expenditure, Recursion shares the following pipeline overview in a corporate presentation:

chart

If you remove the “AI” element, Recursion's pipeline would arguably not support much more than a ~$500m market cap valuation, as it lacks compelling mid or late-stage data and there is no prospect of near-term commercial revenues, however Recursion's market cap valuation is $2.2bn at the time of writing.

The company has partnerships in place with $Roche Holding Ltd(RHHBY)$ $Sanofi SA(SNY)$ $Bayer A.G.(BAYZF)$ $Merck KGaA(MKGAF)$, and says it has earned $45m from Roche/Sanofi, but again, partnerships with Big Pharma's that promise billions in future milestone payments only pay out when a company successfully develops a commercially viable drug, and by Recursion's own admission, each of its drugs stands a one-in-tern chance of succeeding in its clinical study.

Has FDA Unlocked A Use Case For AI In Drug Development?

Perhaps the FDA has handed a life-line to Recursion by stating its intent to phase out animal testing, however.

In all honesty, I am unsure what size the animal testing market is today. OmniAb (OABI), a company that I believe supplies animal testing facilities for companies developing monoclonal antibodies, has a current market cap valuation of ~$230m.

It is also by no means a given that biotechs and pharmas will choose Recursion as their trusted AI-testing partner, but it seems possible that Recursion could create a "side-hustle" in this field.

What may also be the case is that any sign that AI is beginning to find use cases within the drug development field, even unexpected ones, may be taken as a sign that the hype around the industry is justified, and trigger a buying spree, that may be disproportionate to the actual opportunity in play.

I believe it can be interpreted as a good sign; however, it would still be my opinion that the hype is running some way ahead of the reality.

As I have discussed before, AI-driven drug discovery is one of the worst performing sectors of the stock market, with share prices of e.g. $AbCellera Biologics(ABCL)$ $Relay Therapeutics(RLAY)$ all experiencing >90% share price declines, and others being delisted or closed down. Recursion merged with Exscientia last year to create an “AI superpower”, but the reality is, apart from spikes driven by interest from giants such as semiconductor maker $NVIDIA(NVDA)$ , the stock prices of these companies seem to slip ever-downwards.

Blame does not necessarily need to be apportioned for this—cutting-edge supercomputers are incredibly expensive to run, staff with post-graduate degrees expensive to hire, and new drugs elusive and highly challenging to develop successfully. It is simply not a recipe for rising share prices.

On the plus side, we can say that there is plenty of goodwill towards the sector, and plenty of people prepared to invest in its potential, but when, in its annual report, Recursion lists the likes of $Alphabet(GOOG)$ $Microsoft(MSFT)$ $Amazon.com(AMZN)$ as competitors, plus $Johnson & Johnson(JNJ)$ $Merck(MRK)$ $Pfizer(PFE)$, and even $Moderna, Inc.(MRNA)$ $BioNTech SE(BNTX)$ $Roivant Sciences Ltd.(ROIV)$, that may lead people to the erroneous conclusion that Recursion can be a multi-billion dollar revenue company playing a major part in changing the healthcare landscape in the not-too distant future.

That simply isn't true, and today's news does not change that, but it does confirm that there is plenty of goodwill towards AI in drug-development, and underlines the fact that AI today may have some practical use cases within the field of drug development.

I doubt this was what Recursion had in mind as it invested billions into building super-computers and brains trusts, but it at least does represent some much-needed incremental progress.

Upgrading Recursion Stock To “Hold”

To date, AI-driven drug discovers have not been successful in converting this ability into a viable business model, which is why share prices have suffered, but there is always a chance that an Nvidia or a similarly well-resourced company invests a substantial sum into a business like Recursion's, which means price spikes cannot be ruled out.

My suspicion is that Recursion may need many more headlines like today's throughout the remainder of 2025 and into 2026 to keep its share price buoyant, but the revolution has to begin somewhere. Every journey begins with the first step; hence, I'm prepared to upgrade stock to a "Hold".

Stock Price Forecast:

Here are the target price forecasts for the next 12 months from analysts.

Based on 6 Wall Street analysts offering 12 month price targets for Recursion Pharmaceuticals in the last 3 months. The average price target is $8.75 with a high forecast of $11.00 and a low forecast of $6.00. The average price target represents a 51.91% change from the last price of $5.76.

Resource:

https://seekingalpha.com/article/4774573-recursion-fda-to-replace-animal-testing-with-ai-a-small-but-necessary-win

For whom haven't open CBA can know more from below:

🏦 Open a CBA today and enjoy privileges of up to SGD 20,000 in trading limit with 0 commission. Trade SG, HK, US stocks as well as ETFs unlimitedly!

Find out more here：

• Trade on a Cash Boost Account and enjoy up to 6 months of Commission-Free trading.

• 💰Join the TB Contra Telegram Group to Get $10 Trading Vouchers Now🎉

• 💰CBA Mini Course 1: What is Cash Boost Account(CBA)?