As artificial intelligence (AI) continues to revolutionize various sectors, drug development stands out as a prime beneficiary. Projections indicate that by 2030, the global AI in drug discovery market is poised to reach a substantial $4.6 billion, expanding at an impressive compound annual growth rate of 27.6%.

A recent study by the consulting giant Boston Consulting Group (BCG) highlighted that drugs discovered using AI boast an extraordinary 80% to 90% success rate in Phase I clinical trials, far surpassing the historical average. This underscores AI’s remarkable efficacy in identifying molecules with promising drug-like properties.

Amidst AI’s potential to double the productivity of companies in this domain, now presents a golden opportunity to delve into three promising AI-driven small-cap stocks: Recursion Pharmaceuticals, Inc. (RXRX), Schrödinger, Inc. (SDGR), and Exscientia plc (EXAI). Let’s explore these companies in depth.

Exploring Recursion Pharmaceuticals

With a market capitalization of $2.23 billion, Utah-based Recursion Pharmaceuticals, Inc. (RXRX) emerges as a leading clinical-stage “TechBio” company pioneering drug discovery through biology decoding. Its cornerstone platform, the Recursion OS, amalgamates diverse technologies to augment one of the world’s largest proprietary biological and chemical datasets.

Over the past 52 weeks, Recursion’s shares have surged by 13.6%, with a notable 36% rise over the preceding six months.

In its Q1 earnings report released on May 9, Recursion exceeded Wall Street estimates. The company’s total revenue soared by 13.7% annually to $13.8 million, surpassing predictions by 5.6%. Furthermore, its loss per share of $0.39 outperformed forecasts by 9.3%.

During the quarter, Recursion’s Research and Development (R&D) expenses surged 44.7% year over year to $67.6 million, reflecting the company’s endeavors to enhance and expand its platform across all developmental stages. As of March 31, the company boasted $296.3 million in cash and cash equivalents.

On May 13, Recursion unveiled its cutting-edge AI supercomputer, BioHive-2, powered by Nvidia (NVDA) DGX SuperPOD technology. This groundbreaking supercomputer, which outpaced its predecessor, BioHive-1, by fourfold in benchmark performance tests, propelled Recursion’s shares up by almost 10.2%. BioHive-2 now stands as the fastest supercomputer owned and operated by any pharmaceutical company globally.

Although Recursion refrained from providing guidance, analysts anticipate an 8.1% reduction in its loss per share by fiscal 2025. The stock holds a consensus “Moderate Buy” rating, with price targets suggesting potential upsides of 36.9% and an impressive 79.1% from current levels.

Unveiling Schrödinger

Schrödinger, Inc. (SDGR), based in New York, specializes in developing a physics-based computational platform that facilitates the discovery of novel molecules for drug development and materials applications. With a market cap of $1.6 billion, the company caters to various industries globally.

Over the past year, Schrödinger’s shares have retracted by approximately 42%.

Reporting Q1 earnings on May 1, Schrödinger unveiled a total revenue of $36.6 million, with a loss per share of $0.76 in line with expectations. As of March 31, the company held approximately $435.7 million in liquid assets. The same day also saw Schrödinger receive FDA clearance for its investigational new drug (IND) SGR-3515.

“Over the past year, we have witnessed unprecedented interest in computational drug discovery, and we are excited by the growing appreciation for using computation to drive pharmaceutical innovation. We are excited about the opportunities we have to increase customer adoption of our platform this year and drive revenue growth going forward,” stated CEO Ramy Farid, Ph.D.

Management reiterated its guidance for fiscal 2024, anticipating growth in software revenue between 6% and 13%, with drug discovery revenue ranging from $30 million to $35 million. Analysts foresee a 38.5% decrease in Schrödinger’s loss per share by fiscal 2025.

Schrödinger stock carries an overall “Moderate Buy” consensus, with analysts projecting potential upsides of 76.6% and an incredible 196% from current levels.

Pioneering Exscientia

Headquartered in Oxford, UK, Exscientia plc (EXAI) stands as an AI-driven precision medicine company dedicated to swiftly discovering and developing optimal drugs. Known for creating the first functional precision oncology platform, Exscientia aims to enhance treatment selection and patient outcomes in clinical studies, advancing AI-designed small molecules to clinical trials. Exscientia currently boasts a market cap of $568 million.

While Exscientia’s shares have surged by 16.5% over the past month, the biotech stock remains down by 22.8%.