Investors looking to capitalize on the growing artificial intelligence (AI) industry are mostly turning to the tech sector, which is home to some of the best AI stocks on the market. However, companies in other industries are also using AI in ways that could improve their businesses and make them more attractive investments.
Consider Eli Lilly (LLY 2.26%), the world's most valuable healthcare company, which recently announced an AI-related initiative. Does the company's work in this field make the stock a buy?
Eli Lilly partners with the AI leader
On Jan. 12, Eli Lilly announced that it would partner with Nvidia (NVDA 1.53%) to build an innovation lab in the San Francisco Bay area. The lab will bring together some of Eli Lilly's experienced researchers and Nvidia's engineers to collaborate on building AI models to accelerate drug discovery. The two companies will invest up to $1 billion over five years in this initiative.
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Why is this important? Developing novel medicines is currently a slow, risky, and time-consuming process that can take over a decade and cost more than $1 billion. Many brand-new compounds that enter the clinic never reach the market.
Improving the success rate of these efforts would be a massive win for Eli Lilly and the entire pharmaceutical industry. It's worth pointing out that this isn't the first such move the company has made.
Last year, Eli Lilly announced it was building what would become the most powerful supercomputer in the industry, in partnership with Nvidia. Eli Lilly hopes to train this supercomputer using the massive amount of data on clinical trial successes and failures it has amassed over the years.
Before that, Eli Lilly launched TuneLab, a platform for an AI drug-discovery model, which it made available to smaller biotechs that wouldn't otherwise be able to build one. Access to the platform is free for smaller drugmakers and will grant Eli Lilly access to even more data it can use to train and fine-tune its AI models.
Is Eli Lilly stock a buy?
The company's AI-related efforts are unlikely to pay off anytime soon. However, if AI does have the potential to transform drug discovery, the drugmaker seems well-positioned to be one of the biggest winners from this transformation, given the moves it is making.
That isn't the best reason to buy the stock today, though. There are other things that make Eli Lilly attractive. Here are three of them.
First is the company's dominance in the market for weight management drugs. Eli Lilly's tirzepatide, sold under the brand name Zepbound for weight loss, became the best-selling drug in the world in the third quarter and should continue powering strong top-line growth for the company, at least through the end of the decade. The company's revenue grew 54% year over year to $17.6 billion in the third quarter, while its earnings per share (EPS) came in at $6.21, a whopping 480% higher than the year-ago period.
NYSE: LLY
Key Data Points
Beyond its current lineup, Eli Lilly appears to be close to launching orforglipron, an oral medication to treat diabetes and obesity. Meanwhile, some of its pipeline candidates in this area, such as retatrutide, are also delivering outstanding results.
Second, Eli Lilly has sought to diversify its pipeline to reduce reliance on its core therapeutic area. Relatively recent approvals that should make a small dent in its financial results include Ebglyss for eczema, Jaypirca, a cancer medicine, and Kisunla, which treats Alzheimer's disease.
The company's pipeline also features a range of products across oncology, immunology, pain management, and rare diseases, among others. Eli Lilly should succeed in launching more products over the next five years that will help diversify its lineup.
Lastly, the drugmaker is a great dividend-growth stock. Eli Lilly is generating substantial free cash flow and using it to reward shareholders with consistent dividend increases. Over the past five years, the company's dividend has increased by 103.5%. It doesn't matter if it's for growth or dividends -- Eli Lilly is an excellent stock to buy.
