Key Points

Artificial intelligence technology giant Nvidia owns a handful of promising stocks.
One of these holdings is helping lead the charge of change for an industry that could use a cost-reducing revamp.
Although this name poses above-average risk and brings above-average volatility to the table, Nvidia's interest speaks volumes.
10 stocks we like better than Generate Biomedicines

You have likely encountered the phrase smart money when discussing top Wall Street investment professionals. This description can apply beyond fund managers. Any entity selecting equities may qualify as smart due to specialized knowledge in a field or sector.

Consider Nvidia (NASDAQ: NVDA). It stands as a foremost authority in artificial intelligence, producing the processors central to most AI systems and collaborating with tech firms to enhance these technologies. When this organization invests in an AI-related equity, it carries notable weight.

Missed Nvidia in 2009? This Rare Signal Is Flashing Again. In 2009, a Double Down signal flashed for a little-known chipmaker called Nvidia. For the first time in years, that same Total Conviction signal is flashing for a company 1/100th the size of Nvidia. Continue

Against this background, Nvidia via its venture capital unit NVentures now holds 833,325 shares of a modest biotech firm named Generate Biomedicines (NASDAQ: GENB). Here is the situation.

Image source: Getty Images.

What is Generate Biomedicines?

With a market capitalization around $2 billion and minimal revenue to date, this pre-profit entity remains far from a familiar brand. Most people have probably never come across it.

That aside, Nvidia's roughly $13 million investment represents a tiny fraction of its sizable cash reserves. The key detail is that Nvidia has taken notice and chosen to invest.

Moreover, Nvidia possesses deep insight into the company's operations.

Generate Biomedicines operates differently from typical biotech firms. It has built an AI system that simulates how potential drug molecules could interact with specific diseases.

This approach extends beyond theory. The platform operates actively, advancing real compounds into actual clinical studies. Current data shows four candidates in development, including one in phase 3 trials: GB-0895 targeting severe asthma.

No practical limit exists on the volume of simulations possible, whether independently or with collaborators, provided suitable concepts arise for evaluation.

Forming a substantial prospect

This AI-driven simulation does not replace traditional clinical studies. Regulatory authorities such as the FDA still mandate real-world evidence of safety and efficacy.

Nevertheless, Generate Biomedicines' tools tackle major pharmaceutical hurdles: excessive time and expense.

Roughly one in ten candidates entering trials gains approval, though the true attrition rate proves even steeper at earlier stages when efficacy data or safety signals fall short.

These efforts demand substantial investment, especially during trials. Data from Thermo Fisher Scientific's Patheon Pharma Services unit suggest bringing one approved therapy to market requires 10 to 15 years and $2.6 billion. Similar costs apply even for candidates that reach phase 3 without approval, with lower figures for those discontinued sooner.

The greater loss involves promising therapies never pursued due to concerns over resource allocation.

Generate Biomedicines' platform lowers this uncertainty by offering virtual predictions of drug-disease interactions. Research indicates AI-assisted candidates succeed in phase 1 at roughly double the rate of those without such screening. This advantage positions AI drug design to reshape the $1.8 trillion pharmaceutical industry and its ongoing portfolio updates.

When Nvidia sees value...

Generate Biomedicines is not alone in this emerging space. It faces competition from Recursion Pharmaceuticals, partnered with Sanofi and Roche, along with Insilico Medicine and Isomorphic Labs, a DeepMind spinoff collaborating with Eli Lilly and Novartis. Generate Biomedicines must secure its portion of a market Precedence Research projects to reach $160 billion annually by 2035, up from under $20 billion recently.

Even modest market share would deliver major gains.

More immediately, Nvidia selected Generate Biomedicines among several options, despite also working with Recursion and providing processors to Insilico. This choice highlights Nvidia's assessment of the company. Investors comfortable with the associated risks and swings may wish to consider the signal.

Should you buy stock in Generate Biomedicines right now?

Before you buy stock in Generate Biomedicines, consider this:

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James Brumley has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet, Eli Lilly, Nvidia, and Thermo Fisher Scientific. The Motley Fool recommends Roche Holding AG. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.