The explosive growth of artificial intelligence (AI) has presented investors with both extraordinary opportunity and material risk since it burst onto the mainstream in the early 2020s.
It has streamlined workflows, automated tasks and, in many cases, posed a direct threat to entire industries and workforces. But, for those looking to actively participate in the AI revolution while still protecting portfolios from its power of “creative destruction,” we believe there is one sector that sits in a genuinely unique position: health care – and biotech in particular.
Unlike other industries facing displacement, biotech is being amplified by AI, not replaced by it. In our view, AI‑driven innovation, the sector’s defensive characteristics, and rate‑sensitive upside places biotech at the center of a compelling opportunity that lets investors play both offense and defense.
The AI boost
AI’s integration into health care has already led to vast improvements in drug discovery, target identification, protein modelling, and clinical development. Importantly, rather than replacing scientists, AI is acting as a force multiplier by helping to speed up the work they do, increasing precision, saving on costs and expanding possibilities in drug discovery.
The main output – new medicines – still requires clinical validation, regulatory approval, and human decision‑making and insight. So, regardless of AI’s evolution, biological research remains too complex, probabilistic, and ethically constrained to ever become fully automated.
And this leads us to a unique paradox: while biotech stands to gain significant upside from AI tools, it faces minimal existential risk from displacement. This positions biotech as one of the safest AI‑aligned sectors in public markets.
Why now?
While many technology names have seen valuations soar thanks to AI-driven enthusiasm, the same cannot be said for biotech. Indeed, healthcare stocks are still trading at meaningful discounts to the wider market, and we believe this disconnect is creating a rare opportunity in today’s market. Indeed, the tide may be turning already. Despite the turmoil we’ve seen so far this year, biotechs rose in the first quarter.
With higher interest rates compressing valuations across long‑duration, R&D‑heavy businesses, if rates move lower, the sector could be primed for a powerful re-rating. Furthermore, biotech’s fundamental characteristics only strengthen our case:
- Biotech is defensive and acyclical, meaning demand does not fluctuate with economic cycles.
- The sector avoids geopolitical supply‑chain risk and aligns with national‑security-driven reshoring trends.
- Low correlation with tech valuations provides diversification for AI‑heavy portfolios.
Despite the turmoil we’ve seen so far this year, biotechs rose in the first quarter.
Healthcare shines bright
An acronym that has been taking off in recent months is ‘HALO’ (‘heavy assets, low obsolescence’) – a shorthand for companies insulated from rapid technological disruption. However, for me health care deserves another interpretation of the HALO framework. For us, HALO represents: Health care, AI, Lower Rates, Offense-defense symmetry.
Offense
- AI supercharges drug‑development pipelines, probability of success, and platform scalability.
- AI‑native biotech companies could represent the next generation of transformative growth.
- Medicine becomes more precise, and datasets become more predictive.
Defense
- The sector stands to benefit from secular healthcare demand, regardless of economic conditions.
- The underlying science is immune to AI replacement, helping to insulate long‑term revenue models.
- Health care is historically countercyclical and resilient in downturns.
The bottom line
It’s impossible to ignore AI’s disruptive power – but in biotech, we believe it is enabling innovation rather than threatening it. At a time where valuations remain discounted and rate dynamics could turn supportive, the unique combination of AI‑enhanced innovation, structural defensiveness and discounted valuations makes healthcare a compelling place to look for stability and growth.
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