The market seems to be falling heavily out of love with the AI stocks, and for good reason: CapEx is rising at a staggering rate, especially among the Mag Seven AI darlings, all while the question marks surrounding ROIs get bigger. It’s easy to predict how this will all end. Such heavy CapEx and a relative lack of profits to show could end in tears, a correction, and more “years of efficiency” as valuations and growth estimates are viciously reset to the downside.
With the S&P 500 in an expensive place and doubts growing about the magnitude of AI-driven gain moving forward, it can seem unwise not follow the crowd out of the AI growth trades and into the steady, boring plays that were built to fare well, even in a recession.
AI growth on the cheap? Diversifying into the biotech scene could be the move
Though time will tell how the first big AI correction plays out, I do think that there’s no shame in diversifying into other sectors as well, especially if you’re already heavily exposed to the AI revolution, either with concentration in the Mag Seven or overweighting in the likes of Nvidia (NASDAQ:NVDA | NVDA Price Prediction). Heck, if you hold the S&P 500 index funds, you’re probably already overinvested in the AI-driven tech plays, which include the likes of the Mag Seven.
Either way, it’s time to look to other sectors, not just for growth, but for underestimated AI upside. Of all the sectors that stand to be profoundly uplifted by the rise of AI, I think biotech is the one that stands out. Sure, there’s the hope that AI cures cancer and treats just about any disease. But such hopes and ambitions seem like more of a pipe dream than something close to reality, at least judging by valuations across the board of AI-driven biotech stocks.
Let’s have a closer look at two biotech stocks that look like AI winners that may very well be even more magnificent than the Mag Seven for the next three to five years:
Eli Lilly
Eli Lilly (NYSE:LLY) stock seemed to be back to its winning ways after spiking to end 2025. More recently, though, shares have stalled, with shares now down close to 7% year to date. Undoubtedly, the GLP-1 drug market is getting quite competitive, but with Zepbound and Mounjaro leading the way, Eli Lily remains the king as the market shifts gears from injections to pills.
Beyond the GLP-1 driver, which seems mostly priced into the stock at this point, there’s the AI upside. The company’s $1 billion Nvidia partnership isn’t just for show; it equips the biotech with the tools needed to turn the dream of AI-assisted drug discovery into something real. It’s hard to know what to make of dry labs (as opposed to wet labs) and the implications for speeding up clinical trials. The concept of digital twins also feels a bit sci-fi, even at this point in the AI revolution.
As Eli Lilly leverages its trove of data while doubling down on its “AI factory” powered by the recently-launched LillyPod supercomputer, I find it tough to pass up on Eli Lilly, especially given the longer-term potential behind agentic AI trials. Time will tell how much AI can transform the biotechs. Either way, Eli Lilly is all aboard, and for that reason, the stock looks like a bargain at less than 30.0 times forward price-to-earnings (P/E).
Even if the AI efforts cost plenty but yield nothing game-changing over the near term, Eli Lilly has other cash cows, most notably GLP-1 drugs, to keep the ship moving forward. I think it’s just a matter of time before Eli Lilly breaks through the $1 trillion market cap mark. Whether it takes an AI-powered breakthrough, though, remains the big question.
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