Shares of medical imaging start-up company Nano-X Imaging (NNOX 0.45%) were up 105.1% in February, according to data provided by S&P Global Market Intelligence. A regulatory filing revealed that market darling Nvidia had a stake in Nano-X (also called Nanox). And investors took Nvidia's stake as a vote of confidence for the stock.

Unfortunately, I believe the market drew the wrong conclusion with Nvidia's investment stake in Nanox stock -- I say that as a shareholder myself.

In 2017, Nvidia invested in Zebra Medical with its venture fund. But in 2021, Zebra Medical was acquired by Nanox in a stock deal worth almost $200 million at the time. Therefore, Nvidia does own nearly 60,000 shares of Nanox like its regulatory filing says. But it acquired these shares indirectly from an investment in 2017.

Nanox stock more than doubled on the news from Nvidia. But of the five stocks in Nvidia's portfolio, its stake in Nanox might be the most inconsequential.

Nanox is still promising

Nanox is trying to disrupt the X-ray industry with its novel digital-imaging technology. In theory, once its medical devices are being regularly used, it will quickly build a database of medical images.

That's where the promise of artificial intelligence (AI) comes in. Nanox acquired Zebra Medical because its AI "algorithms highlight early, previously undetected signs of common chronic diseases." In other words, as Nanox's image database grows, its AI can potentially analyze the images to improve outcomes for patients. That's an exciting possibility to consider.

What investors need to know now

Possibilities don't pay the bills. Through the first three quarters of 2023, Nanox had generated revenue of only $7.5 million and had an operating loss of $52 million. This is common with medical start-ups.

However, Nanox is making commercial progress. It has a few of its medical devices set up in various countries, although they're mostly for demonstration purposes at this stage.

Moreover, Nanox is making regulatory progress as well. On Feb. 13, the company announced its AI software received Food and Drug Administration (FDA) clearance to assess images of fatty livers. Many investors don't realize that software needs approval just like hardware so it was good to see Nanox get this in February.

Nanox should report financial results for the fourth quarter of 2023 in March. The numbers will likely still be modest. Investors should focus on how much cash it's burning, how much cash it has, and what management believes it can accomplish in 2024.

Nanox stock is a risky proposition and investors shouldn't see Nvidia's paltry stake as a sign that it's less risky than it is. That said, there's still reason for long-term optimism today.