Shares in Pro Medicus Ltd (ASX: PME) have more than halved over the past year amid the broader technology sell-off.
The company hasn't had any news of note to release since December 1, when it announced a $25 million, seven-year contract in the US, so it's not like there is any bad company-specific news driving the share price lower.
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Caught in the tech crash
The analysts at Morgans have had a look at the company and believe that it "has been sold off heavily as investors increasingly worry that AI could structurally erode the economics an commoditise premium imaging SaaS (software as a service) platforms''
They added, "For Pro Medicus, that feels misunderstood".
That said, they believe AI has a role to play in radiology, the field in which Pro Medicus operates.
As they said in a note to clients this week:
Global imaging demand and in particular CT and MRI utilisation has grown faster than radiologist supply for more than a decade. The size and complexity of these modalities create workflow bottlenecks, long reporting queues, radiologist burnout, and pressure for cost and efficiency gains. AI's core value in healthcare is efficiency, speeding up workflows through automation, consistency, and smarter prioritisation. It already tackles tasks such as image‑quality checks, auto‑labelling, and even pre‑reading clear negatives or obvious cases. These sit around the diagnostic moment but don't replace the need for radiology itself, nor the enterprise workflows, data routing, and high‑performance visualisation that underpin it.
But Morgans added that while AI will no doubt become a powerful tool in healthcare, it still needs infrastructure to operate, which is where Pro Medicus comes in, with its proprietary product suite that enables the compression and decompression of large radiology files.
As the Morgans team said:
Pro Medicus provides that infrastructure, so, in many ways the acceleration toward AI potentially makes its business case more compelling as a product versus peers – at least in the medium term.
Company has a wide moat
Morgans says while there are already start-ups pitching end to end imaging solutions, they're "tiny, unproven and not enterprise ready''.
They also note that the buyers in the field tend to be risk-averse with long testing and procurement cycles.
The Morgans team said:
So, is there risk ahead? There is. There always has been. But we don't see it as existential, or likely a material threat in the next 5 to 10 years. Even so, Pro Medicus should have renewed and signed even more large contracts, locking in the next 7-10 years of guaranteed minimum revenues. Growth is far from done.
Morgans has a 12-month price target of $290 on Pro Medicus shares, compared with $161.17 currently, which would represent a gain of 79.9% if achieved.
Pro Medicus will release its first-half results on Thursday, February 12.
