Pro Medicus Ltd (ASX: PME) shares have performed well this week on the back of two major contract wins, but the shares are still well down on their highs over the past 12 months.
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AI boom or bust?
One of the big questions for investors is whether artificial intelligence will be a positive for the company, or will over time eat into its market share as competitors seek to replicate its products on the cheap.
Two brokers have issued research reports this week with bullish share price targets on the company, indicating they don't think AI will spell downside for the company.
And notably, the company's Chief Executive Officer, Dr Sam Hupert, directly addressed the issue of the impact of AI in an interview published on the ASX along with the new contract announcements.
Mr Hupert said regarding the company's share price falls, that the so-called SaaSpocalypse fear "affected the share price of most, if not all, software companies globally, including PME''.
He went on to say that he believed AI would be a big opportunity for the company.
Firstly, AI and healthcare are a strong match, and the fit is particularly compelling in diagnostic imaging. We see substantial scope for AI to be a "second set of eyes" improving both the speed and consistency of radiology reporting, and we believe we are ideally suited to play a meaningful role in that transition. Our platform is optimised for AI-enabled workflows at scale, and we have a growing footprint, with our platform now being used by over 10% of the US market, including some of the most luminary healthcare institutions in the world.
Dr Hupert went on to say that the company believed it had a "very large, defensible moat''.
Our solution is proprietary, built by us from the ground up. We did not use an existing model or tool kit readily available to others, and we certainly didn't leave a roadmap as to how we did it. Many have tried to replicate our tech stack over the last 17 years, but no one has succeeded, with or without AI. We also operate in arguably one of the most regulated, mission critical industries where the margin for error is zero, close enough is not good enough.
Brokers like the stock
The analyst team at Morgans said they had had several industry and company contact points in recent weeks, which reinforced their view of Pro Medicus as a company executing well, "noting the second-best sales year, large implementations in train, and a structurally strong competitive position''.
They added:
The business has never been better positioned in our view despite the share price performance. Retain strong positive view and target price of $210 per share.
The team at Macquarie has an even more bullish price target of $221 on Pro Medicus shares, saying the recent contract wins have reminded the market of the company's resilience against AI disruption.
They said:
Recent contract wins and substantial renewals have supported market sentiment on PME following tech-sell down on AI fears. We see the size, variety and increasing upsell to cardiology continuing to support our Outperform rating.
