ROI-Healthcare could be the next big AI winner: Becci McKinley-Rowe

The initial AI gold ​rush enriched the companies selling the picks and shovels: semiconductor manufacturers and other infrastructure ‌providers. The ​next wave of market gains may instead belong to the adopters, with healthcare in a prime position. BlackRock Fundamental Equities' quantitative team has analysed data from more than a thousand public company earnings reports, and the findings show a greater percentage of every sector within the US market is now seeing tangible financial gains from AI use. The benefits of AI are ‌real.

There is still a long way to go, however. Even within tech, only 30% of companies say AI has boosted the bottom line. But current trends suggest the corporate world may be at the start of a powerful shift. Healthcare appears to be especially well positioned because of the scale of its data, the opportunity to reduce sky-high research and development costs, and the enormous value of faster drug development.

THE DATA MOAT Around 90% of new drugs under development are never approved for use. That failure rate means ‌healthcare companies have a vast store of drug-development data that remains private because the medicines never made it into the public realm. In some cases, healthcare companies have more than a century of proprietary data that AI systems can be ‌trained on.

We see this data advantage as the foundation of healthcare’s AI innovation promise. If AI can reduce the industry’s failure rate by better utilizing these vast data sets, drug development costs could fall dramatically. It currently takes around 10 years and $2 billion to develop a new medicine. AI could shorten timelines and reduce friction across the entire drug-development process, from early research through clinical testing and documentation.

Because drugs have a finite commercial window, every month saved can translate into earlier cash flows, longer exclusivity windows and lower capital costs. Companies are already using AI-driven models to design and optimize new molecules, applying machine ⁠learning to analyze ​genomic and clinical data to identify new drug targets, and simulating ⁠trial outcomes. DEMOGRAPHIC DIVIDEND

This potential AI boost comes on top of healthcare’s traditional earnings drivers. First, demand for healthcare typically remains stable regardless of the economic cycle. Next, there are the demographic tailwinds. As populations age, global healthcare needs increase. By 2080, people aged 65 and over will outnumber children under 18, according ⁠to the United Nations.

This structural demand has historically given healthcare a premium valuation versus the broader equity market. However, the healthcare sector is currently trading at a discount, following a period in which market returns have been dominated by AI infrastructure stocks. The question for investors now ​is whether healthcare can close this performance gap and how long it might take. Healthcare's defensive properties are typically less prized in a strong, growth-led market. And even if AI is ultimately a game changer in healthcare, the ⁠industry is highly regulated, so adoption may be a gradual process.

A DEFENSIVE HEDGE Yet interest in healthcare stocks is picking up. BlackRock data shows that monthly investment flows into healthcare exchange-traded products turned consistently positive toward the end of 2025 after two years of outflows. More than $17 billion left these products between January 2023 and ⁠August ​2025, and $25 billion has been invested since then.

Healthcare also still appears to be functioning as a defensive hedge. Our analysis of US market data since the launch of ChatGPT in 2022 shows that on days when AI-related stocks have underperformed, healthcare stocks have typically outperformed. Moving forward, the potential productivity boost from AI could help healthcare restore its valuation premium. But the benefits are unlikely to be evenly shared across the industry. FactSet data for the Russell 3000 Healthcare Index shows a ⁠122% gap between the sector's top- and bottom-performing stocks, compared with 67% for the broader Russell 3000 Index, from 2005 to 2025.

The gap between the sector's strongest and weakest performers could widen further based on which firms are able to take advantage ⁠of this revolutionary technology. But those that can could turn out ⁠to be leaders in the next generation of AI winners. (The opinions expressed here are those of Becci McKinley-Rowe, the head of Fundamental Equities at BlackRock. This column is for educational purposes only and should not be construed as investment advice.)

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(By Becci McKinley-Rowe; Editing by Marguerita Choy and Anna Szymanski)