Artificial intelligence (AI) is transforming business operations, and companies are eager to adopt it for significant financial gains. This trend has investors on the lookout for promising AI stocks, but choosing the right ones can be challenging.

Taking cues from famous investors can help. Cathie Wood, CEO of Ark Invest, includes several AI stocks in her actively managed ETFs, like Recursion Pharmaceuticals (RXRX -0.74%). This company aims to revolutionize drug development using AI. Should investors consider following her lead?

Small Holding in Ark Invest

Recursion Pharmaceuticals operates a virtual lab with an AI system to test drug candidates against human genes. If successful, it could drastically reduce the time and cost of drug development, which can exceed $2 billion and take a decade.

Imagine if they could reduce the time to find a medicine tenfold—this could lead to significant cost savings for patients.

If successful, Recursion could license its technology to other drugmakers, potentially rewarding shareholders greatly. However, it constitutes less than 0.01% of Ark Invest’s portfolio, indicating Cathie Wood may see even better opportunities elsewhere.

Recursion remains speculative, with no products currently on the market. They spend over $5 million before applying for clinical testing approval, compared to the average of over $25 million, and identify leading candidates in just 11 months—much faster than the industry average of 30 months.

Consider Your Risk Tolerance

Since its public listing in 2021, Recursion’s value has fallen by 78%. However, it has crucial data readouts from clinical trials expected in the next 18 months. Positive results could support the company’s goals, but there are no guarantees; failures could result in further losses.

Recursion’s first data readout last month was successful, and they have partnerships with major pharmaceutical companies like Roche, Sanofi, and Bayer. These collaborations suggest promising candidates and indicate less risk of funding or regulatory issues for these projects.

Despite this, Recursion remains a risky biotech investment. Cautious investors might start with a small position, increasing it as Recursion validates its approach.