3.28.2025 Healthcare AI investing - near/mid/long term
If you're building a healthcare company or product, you want to be clear about where your revenue will come from. And you want to be VERY clear about where it can't come from.
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🧭 In this Issue
- 📉 Big Tech isn't the whole story – The Magnificent 7 are losing steam in 2025, and smart investors are scanning beyond them for value-creating, cost-reducing AI plays in healthcare.
- 🔒 AI in healthcare hits a speed bump – Security concerns are slowing GenAI adoption, pushing attention to players who can balance innovation with trust (e.g., Snowflake, Databricks).
- 💸 Patients & governments are tapped out – Future revenue likely won't come from them, but from disrupting incumbent margins with leaner operating models.
- 🧱 Mid-term disruption needs deregulation – If barriers drop, new entrants could shift dollars from admin overhead to actual care—big opportunity, but high difficulty mode.
- 🧠 Long game = rethink the financial engine – True innovation lies in rethinking risk using smarter tools from broader finance and crypto—creating a sustainable model that works for all.
Opinions expressed are those of the individuals and do not reflect the official positions of companies or organizations those individuals may be affiliated with. Not financial, investment or legal advice, and no offers for securities or investment opportunities are intended. Mentions should not be construed as endorsements. Authors or guests may hold assets discussed or may have interests in companies mentioned.
[macro]
- Consumer Confidence fell again in March - confidence about future employment is at a 12 year low.
- Economist's visual guide to critical minerals and rare earths - and why they are the focus of 21st century geopolitics, like fossil fuels were to 20th century geopolitics.
- Recycling minerals will be a challenging but necessary part of 21st century energy and economic growth. What to do with all those worn out EV batteries.
[emerging tech]
- Harvard P&G study: Individuals using AI matched the performance of teams without AI. Teams using AI are more likely to think and communicate cross-functionally rather than default to language/frameworks of their disciplinary silos. To put this in context see: Move people out of the middle - How AI will reshape the workforce 2025-2035
- DeepSeek V3 0324 is free open source, can run locally in a high end Mac, and outperforms its closed source competitors (OpenAI, Claude Sonnet etc).
- Time to re-read: The 2023 "No Moat" leaked memo from an unnamed Google AI engineer who saw this coming. AND...
- The Cathedral and the Bazaar - the original realization that open source projects have advantages closed source projects can't replicate. (See also Wikipedia notes on how this impacted software.)
- Alibaba Chair Joe Tsai warns of a Data Center bubble - and EU firms look for ways to abandon US cloud services.
- Quantum startups are making headlines: PsiQuantum raises $750m in a round led by BlackRock. NVIDIA is building a Quantum research center in Boston.
[perspective]
How Investors & Innovators should be dissecting the AI revolution in US healthcare
The following Near/Mid/Long term view is intended to help you construct your own independent view of the Healthcare industry so you and your advisors can make decisions about what investments are best for your goals.
🔭Near-Term: 2025-2026 - look beyond the 7
The Magnificent 7 is off to a rough start in 2025, down an average of ~14%. The extreme concentration of growth in just 7 tech/AI firms isn't sustainable. How likely is it that the Magnificent 7 will turn out to be the exact 7 pillars of the future economy? Is there a chance that one or more of these 7 have overhyped expectations and won't have the same bright futures as the others?
Right now there is a lot of focus on AI as a panacea for healthcare. While some value is being realized, 46% of strategy teams say security and privacy risks are slowing their adoption of GenAI.
This combination of factors is prompting savvy investors to look beyond the Magnificent 7. Is there an Impressive 14 or even a Respectable 28?
It comes down to an investment strategy question: Are we betting on expansion, or just bracing for a crash?
Examples of entities that may be positioned to benefit as healthcare and the broader market figures out AI:
- Salesforce seems to be driving AI agent adoption in insurance.
- Eli Lilly may be positioned to continue to benefit from GLP-1s.
- Snowflake and Databricks (note: Databricks is private) have leaned into HIPAA cloud compliance in order to gain marketshare in US healthcare.
- AI Security and AI Insurance is starting to get the attention it deserves. These players are breaking ground on solutions that will likely take hold and gain momentum over time.
There are many other examples. A suggested filter:
- Consider which investment options drive up the cost of healthcare vs enable increased cost effectiveness for healthcare.
- Short term money grabs historically don't provide reliable bets - they aren't driving broader benefits and solely contribute to imbalances.
- Someone convinced they're smart enough to outrun reality might do so for a cycle or two, but it ultimately comes down to this: syphoning $$$ away from people in need doesn't create a growing economy. It does the opposite.
💥Mid Term: 2026-2030 - disrupt the incumbents
If you expect 3-5 year revenue growth and ROI from the companies you're building or investing in, you have to think about where that revenue is going to come from. And, in the case of healthcare, where it won't come from:
- Patients - Medical debt is at all time highs. Growth plans that assume increased out of pocket purchases from patients will likely stall.
- Government - Fed Government debt is also at all time highs, and State/Local Government fortunes are tied to those of the Federal Government. If your product/company assumes it can grow by tapping into Government largesse, think again. (Related note: this is the rather large horsefly in the ointment of the payer and payvidor strategies that double down on government business.)
This leaves entrepreneurs and investors with one target: The industry incumbents that are currently taking the lion's share of healthcare dollars.
Their margins = your opportunity space.
Caveat: Disrupting incumbents in a regulated industry (like healthcare) is not an easy game. But the next 5 years might be the best time to go for it - if the current administration de-regulates the industry to the point of breaking down the regulatory barriers to entry that very effectively shield healthcare's incumbents from disruption. This - possibly - could create openings for disruptors to unleash more efficient operations and risk management models.
If this happens, we will see a transfer of value/revenue from a set of incumbents to a set of newcomers - who hopefully operate with smaller margins so that a larger percent of each healthcare dollar can go to healthcare outcomes delivery vs. administrative process. One can hope.
🛠️Long-Term: 2030+ fix the financial model
The longer future of healthcare is tangled up in the question of - will we ever address the fundamental issue of economic distortion? The mental model assumptions underpinning the US healthcare system fall apart under objective scrutiny. The only thing that keeps them "working" (a stretch) is the continued belief that the industry will be able to continue extracting more and more $$ from taxpayers and patients. Year after year, the industry skates onto thinner and thinner ice as government debt and household medical debt sets new records.
To sketch this in a few key points:
- Across healthcare, there is an intuitive grassroots convergence on the need to fix the industry's flawed approach to managing risk. The current approach seeks to protect healthcare insurers from risk of insolvency, but not healthcare providers. It also seeks to protect patients from physical suffering but not financial suffering.
- This approach is compelled by a misguided "moral hazard" logic that actually does not apply to the realities in healthcare. (See Moral Hazard and Healthcare for an explainer). This misapplication provides protection from some participants, but makes the overall system worse.
- And this diagnosis applies to both private and public insurance models - both have the same fundamental problem of flawed risk management - it does not matter whether the source of funding is insured membership or taxpayers.
- As compelling/obvious as this may seem, financial leaders across the industry struggle to agree on the how to approach a "post-moral hazard" model - primarily because healthcare has operated in isolation from the full set of financial instruments used by the broader risk industries. One might argue they were perhaps too comfortable to be motivated toward more effective financial innovation.
- Other branches of risk (broader insurance, reinsurance and hedge funds for example) have developed much larger, more creative toolboxes for addressing risks of different types...including in scenarios where a "moral hazard" factor doesn't exist, or is too obfuscated to map into underwriting models.
Taking these points together: The biggest winners in the long term future of healthcare could be players willing to innovate new financial approaches for affordability and sustainability. How would they do this?
- Cross germinating models from other arms of insurance and risk management.
- Starting with completely new sets of financial building blocks such as those being currently experimented with in the non-rug pull sectors of Crypto.
There are some fascinating opportunities in this space, but it will take patience to find and nurture them. I am very curious to see how AI and crypto related technologies might converge to enable a completely different financial model for healthcare.
It's going to be exciting to see who steps forward to take the lead in innovating more affordable and effective healthcare.
Again, none of this is advice, or a 'greenlight' that its safe to proceed ...these are questions for investors and their trusted advisors to answer on their own.
Deeper Dive for Paid Members
- S3T Panorama for Healthcare - landscape, strategic trends & issues
- Learning Path for Healthcare Change Leaders - What to unlearn to increase your positive impact.
Thank you all for reading and sharing S3T! Feel free to DM me on LinkedIn to discuss what you're learning and working on.
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