Few companies in the modern tech space wield as much power as the chip giant Nvidia (NVDA).
Nvidia was once known primarily for gaming graphics processing units (GPUs), but it has since evolved into the crown jewel of artificial intelligence (AI) chips, dominating industries ranging from data centers to autonomous vehicles. As the AI revolution accelerates, Nvidia’s influence only grows.
Over the last few years, Nvidia has invested in several growing companies. From biotech to robotics, Nvidia’s support is like a seal of approval and is often a catalyst for exponential growth.
In its recent 13F filing, Nvidia disclosed that it had invested $58.95 million (at the time of disclosure) in Applied Digital (APLD) and $52.09 million in Recursion Pharmaceuticals (RXRX). Let’s see if these Nvidia-backed stocks are worth buying now.
Nvidia-Backed Stock #1: Applied Digital
Applied Digital (APLD) has earned a name in the digital infrastructure industry, particularly in the development and operation of next-generation data centers designed for high-performance computing (HPC) applications. The company’s facilities are designed to accommodate applications like AI, machine learning, and other data-intensive processes.
Valued at $1.1 billion, Applied Digital stock is down nearly 30% in the year to date.
In the second quarter of its fiscal 2025, Applied Digital reported revenues of $63.9 million, a 51% increase year-over-year. The Cloud Services segment grew by 523% year-over-year, while Data Center Hosting generated $36.2 million in revenue. Despite strong revenue growth, the company remains unprofitable as a result of significant investments in infrastructure and scaling operations. It reported an adjusted net loss of $0.06 per share in the second quarter.
In January, Macquarie agreed to invest up to $5 billion in Applied Digital’s AI data centers, gaining a 15% stake in the company’s HPC business segment. The initial $900 million investment will go towards the Ellendale HPC Campus in North Dakota, with the option to invest an additional $4.1 billion in future projects over the next 30 months.
This infusion of capital is expected to hasten the development of Applied Digital’s data centers, increasing its ability to meet the growing demand for AI and machine learning infrastructure. At the end of November, the company had $314.6 million in cash, cash equivalents, and restricted cash, which provided liquidity for ongoing operations and expansion plans. However, Applied Digital must also focus on reducing its debt levels, as its debt-equity ratio is currently high at 1.1x.
Applied Digital’s focus on HPC positions it to benefit from the growing demand for advanced computing capabilities in a variety of industries, which explains Nvidia’s investment in the company.
Overall, analysts’ sentiment towards Applied Digital remains optimistic with a “Strong Buy” rating. Of the nine analysts covering the stock, eight rate it a “Strong Buy,” and one rates it a “Moderate Buy.” The average target price of $12.44 suggests the stock can rally over 125% over the next 12 months. Additionally, the high target price of $20 implies upside potential of 262% from current levels.
Given the company’s aggressive expansion plans, strategic partnerships, and the rising demand for HPC infrastructure, Applied Digital appears to be on track for significant growth. However, as a growth stock, the company’s high debt levels and lack of profitability present some risks.
Nvidia-Backed Stock #2: Recursion Pharmaceuticals
Recursion Pharmaceuticals (RXRX), a biotech company worth $1.6 billion, has created a proprietary platform that combines high-throughput biology, machine learning, AI, and automation to accelerate drug discovery. Recursion’s stock is down 31% year-to-date.
The Recursion Operating System (OS) allows for the rapid generation and analysis of massive datasets, which aids in the discovery of potential drug candidates across a variety of diseases.
In 2023, Nvidia invested $50 million in the company to accelerate the development of BioHive-2, an AI supercomputer powered by Nvidia that is four times faster than its predecessor, BioHive. This collaboration is intended to improve Recursion’s computational infrastructure and software capabilities.
Furthermore, last year, the company completed a merger with UK-based biotechnology company Exscientia. Recursion has now added “10 clinical and preclinical programs, 10 advanced discovery programs, and more than 10 partnered programs” to its pipeline and expects at least $100 million in synergies.
In fiscal 2024, Recursion reported revenues of $58.8 million, marking a 31.8% increase from the prior-year quarter, owing primarily to collaboration agreements. This increase was primarily driven by a $30 million milestone payment from Roche (RHHBY)/Genentech for the company’s neuroscience phenomap collaboration. However, the company still remains unprofitable. Its net loss in 2024 stood at $463.7 million. The company ended the year with cash, cash equivalents, and restricted cash balances totaling $603 million.
The company’s innovative approach, which combines AI and biotechnology to redefine drug discovery, positions it for long-term success. While the company has made significant progress through strategic collaborations and pipeline developments, it remains in the clinical stage. As a result, this stock is ideal for aggressive investors with a high risk tolerance and a longer investment horizon.
On Wall Street, analysts have a cautious stance on Recursion’s stock, rating it an overall “Hold.” Of the eight analysts covering the stock, one rates it a “Strong Buy,” one a “Moderate Buy,” and six as a ”Hold." Its average target price of $8.83 indicates roughly 90% upside potential. Furthermore, its high target price of $11 implies a potential 137% gain over the next 12 months.
