Could Ginkgo Bioworks Holdings (DNA 10.60%) one day be part of the healthcare sector's version of the "Magnificent Seven" group of high-performing stocks? It's more likely than you think. The Boston-based biofoundry has large aspirations to disrupt the way new drugs are developed -- and there's reason to believe that over time it could succeed in a big way. Consider the following.

The argument for "magnificent" status

Perhaps the most illustrious of the current Magnificent Seven stocks (which all focus on technology) is Nvidia, the graphics-card and chipmaker business that's seeing its shares reach meteoric heights. It's risen 497% in three years as a result of the swelling hype about its role in the rollout of artificial intelligence (AI).

In essence, it sells shovels that its customers need to claim their own portion of the ongoing AI gold rush. The current expectation is that demand for those shovels will keep rising sharply, and that Nvidia will be consistently able to meet demand -- while also continuing to innovate so that its tools remain the most appealing option.

That situation may not seem comparable to the biopharma sector. But that's because the key ingredient -- a hot commodity that customers know they need to buy in order to succeed in the emerging competitive environment -- does not (yet) exist in healthcare in the same fashion.

Think about it. There's already plenty of demand for advanced new medicines of all sorts, and that won't change. Drugmakers are widely trying to innovate with research and development (R&D) in areas like AI-enabled drug design, and in next-generation manufacturing. And they're willing to spend big. The golden goose, a unified automation solution that can handle a majority of research activity (from discovery stage through late pre-clinical stage) as well as most manufacturing activity, remains elusive.

But that's exactly what Ginkgo Bioworks is building. With its biofoundry, it's aiming to provide its customers with a reliable and highly efficient platform to compete in the upcoming biotechnology revolution. The services it offers can, at least in theory, streamline the entire drug development stack to the point where clients hand off their specifications for a specialized bioengineered microorganism, and then later receive the exact chemical or cellular products they want for their desired end use. Most of that process will be highly automated with a combination of software, AI, and laboratory robotics.

Of course, clinical research organizations (CROs) and contract development and manufacturing organizations (CDMOs) have existed for a long time, but they don't necessarily have a reputation for being innovative or inexpensive.

If, on the other hand, Ginkgo can realize economies of scale in both R&D and manufacturing as a result of its automation, it could avoid those problems. And that would make it a premium provider of critical services like Nvidia, which could make Ginkgo's stock fly over time and eventually make it one of the healthcare sector's leading investments.

A few pieces still need to fall into place

There is a growing body of evidence suggesting that Ginkgo is gaining traction. Pfizer, Novo Nordisk, Merck, Eli Lilly, and Moderna are all already working with the company by running programs on its platform.

As of the fourth quarter of 2023, Ginkgo had 162 active programs, a 45% increase from the prior year. For 2024, it aims to onboard as many as 120 additional programs, generating as much as $235 million in total revenue in the process. The demand for its services is clearly there, so it is probable that it will hit its target.

Nonetheless, it still needs to convince the market that it could have a similar trajectory to Nvidia's, and the biggest remaining barrier is that its core thesis is not yet proven. Its quarterly operating margin was deeper in the red in the third quarter than it was three years earlier. It is very far from reaching break-even profitability, and that might not ever happen if the company doesn't find ways to significantly drive down both the fixed and the marginal costs of servicing its programs.

If that situation starts to change, however, the stock could surge. On a long enough timescale, it's fully conceivable that Ginkgo Bioworks would be among the most important collaboration partners in biopharma, enabling players large and small to slash some of their biggest costs.

So, while it isn't necessarily destiny for Ginkgo to eventually join the Magnificent Seven of healthcare, many of the ingredients for doing so are currently present -- and the last missing elements are (hopefully) within its control to address one day.