When it comes to popular healthcare stocks, investors have focused a lot of attention lately on Eli Lilly and Novo Nordisk and the potential of their blockbuster weight management treatments, including Mounjaro, Zepbound, Ozempic, and Wegovy. While these drugs are likely to lead to billions in revenue, Lilly and Novo aren't relying solely on these drugs to grow their businesses.
Both companies are also looking into the potential that artificial intelligence (AI) can bring to their operations -- and for good reason. Accounting and consulting firm PwC estimates that the total addressable market (TAM) for AI in healthcare could reach $868 billion by 2030. One of the obvious applications that AI has for healthcare is facilitating pharmaceutical companies in clinical trials and drug discovery.
While such use cases are exciting, I see another pocket of the healthcare industry that could be positively disrupted by AI: insurance. Let's explore why UnitedHealth Group (UNH 2.15%) could be an under-the-radar growth opportunity because of the intersection between healthcare and AI.
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2025 has been a challenging year for UnitedHealth Group, but...
Back in April, UnitedHealth greatly disappointed investors after the company published revised financial guidance that indicated a lower-than-expected earnings outlook for the remainder of the year. Management blamed the lower profitability on two primary factors. First, utilization rates in the company's Medicare Advantage program exceeded internal forecasts, taking a toll on the company's cost structure. Second, reimbursements in the company's pharmacy benefits management (PBM) platform, Optum Health, were negatively impacted by reductions in Medicare funding as well as changes to some of the patient demographic profiles in this segment of the business.
Data by YCharts.
In short order, the stock price plunged and has shown no indications of recovery, so far. For 2025, share prices are down 40%, making UnitedHealth the poorest-performing stock in the Dow Jones Industrial Average this year.
But before you go writing UnitedHealth off as a broken business, let's examine how AI has the potential to help the health insurance industry and how UnitedHealth specifically could implement this technology to improve the business over time.
...AI has the potential to transform the business
The underlying issue surrounding UnitedHealth's challenges right now has to do with forecasting. There isn't anything fundamentally broken with the business. Rather, unforeseen changes in the macroeconomic environment led to a different reality than what management had previously modeled -- ultimately leading to higher costs and compressed profit margins.
By using machine learning, UnitedHealth could train AI models on claims data and subsequently integrate these feeds into electronic health records (EHR) to help predict more accurate utilization trends. More efficient data feeds could help UnitedHealth hone its pricing strategy and better plan for cost spikes.
In addition, AI has the ability to build predictive models that can more accurately assess patient risk profiles. In theory, this has the potential to analyze more granular detail around various segments of patient data as it relates to engagement rates and risk profiles. This could help improve reimbursement forecasts for the Optum business.
Lastly, natural language processing (NLP) can also be used to create scenario models by simulating how a business could be impacted based on changes in the regulatory landscape. An example of a company that specializes in this area of AI training is FiscalNote. This could help UnitedHealth plan more strategically as it pertains to budgeting decisions during periods of political uncertainty.
Is UnitedHealth Group stock a buy right now?
While shares of UnitedHealth trade at a slight premium to other large health insurers based on forward earnings multiples, the bigger takeaway from the trends below is that the stock price is hovering near a five-year low.
Data by YCharts.
While UnitedHealth's operational challenges won't be fixed overnight, it is key to remember that management believes the company can course correct throughout the second half of this year and be better positioned by 2026.
Whether UnitedHealth transitions into an AI-powered service remains to be seen. Investors with a long-run time horizon might want to consider holding on to their shares, though, as the ideas explored above showcase how AI has the potential to become a game-changing advancement for the health insurance industry over time.
Looked at a different way, UnitedHealth could transform its business over the next several years by making cognizant investments in this technology. Nevertheless, the stock appears dirt cheap right now, and I think patient investors will be rewarded as the company turns things around over the next couple of quarters.
