By David Wysocki
Artificial intelligence (AI) is revolutionizing almost every major industry. From retail to logistics, AI tools are already being used by companies to create greater efficiencies. This trend has been in place for almost a decade, but the recent emergence of highly sophisticated generative AI tools—capable of producing original pieces of content or images—has sparked a new investor drive towards AI-exposed industries.
One industry where we see a growing opportunity related to the development of AI is healthcare. The healthcare industry is massive, with huge companies working in areas that require deep knowledge, research skills, and the analysis of vast amounts of data. AI is helping to make that industry more efficient in myriad ways and, in doing so, opening a whole new range of opportunities for healthcare investors.
How does AI affect the healthcare industry?
To understand the opportunities related to AI in healthcare, it’s important to emphasize that healthcare is inherently innovative. Healthcare companies innovate to grow, whether they are pharmaceuticals, medical device manufacturers, biotech firms, or service providers. Because the healthcare subsectors are so diverse those innovations vary a great deal too. That could include the development and trial of new drugs, the pioneering use of robotics in surgery equipment or the implementation of new forms of electronic medical records.
It’s also important to understand that demand for healthcare is growing. Aging populations in the developed world, as well as the economic growth of the developing world, are driving steady growth in demand for healthcare services, drugs, and medical technologies. Meeting this growing demand will be a key future challenge and priority for many healthcare companies.
AI can help meet that demand and power the next wave of healthcare innovations, so much so that analysts from Precedence Research estimate that by 2032 the market for generative AI in healthcare will be worth over $21 billion USD.
What are the examples of AI in healthcare that are driving market transformation?
Generative AI is already being used to innovate and meet demand in the healthcare sector. As demand for personalized care grows, AI tools can help doctors and other healthcare professionals quickly analyze key data like family history, lifestyle, and additional risk factors. Those tools can also help medical professionals in their diagnostic work, highlighting potential conditions that might not have been immediately considered. It is also being used in the analysis of medical images, working as a form of redundancy to reduce the risk of human error.
While personalized care is important, so too is the analysis of population trends to inform healthcare decisions. AI tools can help analyze and aggregate key data which can point to growing needs for treatments, drugs, devices, and new innovations in the population. For example, through AI pharma companies can better predict the conditions they need to develop treatments for that may be more prevalent in the coming years and decades.
The pharmaceutical industry can also use AI for its drug innovations and development. Generative AI can help identify subsets of the patient population that might respond well to a new treatment, or even suggest new ways of achieving a desired outcome. Much of the work required to develop new drugs relies on rigorous testing. AI can help with that process too, by identifying trial candidates that will inform a robust study.
Finally, AI can help with the internal operations of almost any healthcare company. Healthcare companies tend to be large in scale as the industry has significant capital requirements. Running huge organizations like hospital networks or pharmaceutical companies can be challenging. AI can help analyze and critique internal operations to improve overall efficiency and workflow.
AI technology and it impact on the performance of healthcare stocks
We have already seen how exposure to AI can drive significant stock price appreciation. While some of that is related to hype, investors clearly see the value that can be generated from the development and implementation of next-generation AI tools.
The healthcare sector, with its myriad applications for AI, is exposed to that same positivity. In 2022 research and markets released a comprehensive study of AI in the healthcare market. They noted that the emergence of generative AI was already delivering value for shareholders in many of these companies. Investor appetite for AI implementation, and the wide range of benefits that can come from this technology, should result in an ongoing AI trend within the healthcare sector.
An ETF for AI Healthcare Exposure
Because the healthcare sector is so diverse we at Harvest ETFs believe that Canadian investors can access the opportunities linked to AI in healthcare through a basket of healthcare stocks. We also tend to look favourably on US-listed healthcare companies as they tend to be the largest and most innovative in the world. The Harvest Healthcare Leaders Income ETF (HHL:TSX) delivers a portfolio of 20 large-cap US healthcare companies.
That portfolio is diversified across subsectors, allowing investors to access AI applications in medical devices, biotech, pharma, managed care and more. Because it focuses on large-cap leading companies, HHL also delivers companies with the scale and financial resources to meaningfully invest in AI innovations.
In addition to its portfolio of large-cap healthcare companies, HHL also pays a monthly income distribution to unitholders. That distribution is generated through a combination of dividends from underlying stocks and premiums from the sale of covered call options. That income can help contribute to total returns, offset some potential short-term downside, or help investors meet their cashflow needs.
AI could change the landscape for businesses and industries in countless sectors. Healthcare, however, is near the top of the list due to its innovative nature, its consistent and growing demand dynamics, and the scale of its companies. Canadian investors looking to access the growing use of AI may want to consider how a healthcare exposure can help them achieve their goals.
David Wysocki
David Wysocki is the VP of National Sales at Harvest ETFs. He is a seasoned sales executive who began his career as a financial advisor before taking on a sales role to develop the ETF market for a leading Canadian financial institution. David now leads a large team of sales professionals across Canada. He has a deep knowledge of Harvest products and the broader market and regularly presents ETF insights and macro commentaries to Canadian financial advisors.
