3 Medical Services Stocks Capitalizing on the Healthcare AI Boom

The Zacks Medical Services industry is undergoing a digital transformation and shift towards value-based care, with the global healthcare analytics market projected to reach $540 billion by 2035, representing a CAGR of 19.2%. Despite underperforming the broader market in the past year, the industry is expected to benefit from increased demand for remote treatment, AI-powered analytics, and specialized nursing roles, although labor shortages and rising wages pose challenges. Zacks identifies GeneDx (WGS), CVS Health (CVS), and BrightSpring Health Services (BTSG) as stocks with strong earnings outlooks poised to capitalize on these trends.

Analysis

The Medical Services sector is undergoing a significant transformation driven by technological advancements, specifically the adoption of AI and digital platforms, alongside a shift towards value-based care. The global big data in healthcare market, a key component of this shift, is projected to expand from $78 billion in 2024 to $540 billion by 2035, reflecting a compound annual growth rate (CAGR) of 19.20%. Companies adopting AI technologies have reportedly seen treatment costs fall by 50% and patient outcomes improve by over 50%. This evolution is creating strong demand for remote treatment, telemedicine, and AI-powered analytics. However, the industry faces headwinds from a severe healthcare staffing shortage, with a projected shortfall of over 100,000 healthcare workers by 2028 in the U.S., leading to a 15.6% increase in hospital labor expenses per adjusted discharge compared to pre-pandemic levels. Concurrently, there is a revival in the nursing care market, with specialized roles like nurse practitioners projected to grow 40% from 2023 to 2033. Despite these growth drivers and a favorable Zacks Industry Rank of #67 (top 27%), the Medical Services industry has underperformed, losing 13.4% over the past year compared to the S&P 500's 10.6% gain. It currently trades at a forward 12-month price-to-earnings ratio of 14.6X, below the S&P 500's 21.9X and the broader Medical sector's 19.3X, and is at its 5-year median. Specific companies like GeneDx (WGS), CVS Health (CVS), and BrightSpring Health Services (BTSG) are highlighted for their strong earnings outlooks, with WGS expecting 336% earnings growth in 2025, CVS projecting 12.6% earnings growth in 2025, and BTSG anticipating 82.1% earnings growth in 2025.

Key Decisions for Investors

• Investors should focus on companies within the Medical Services sector that are effectively integrating AI, digital health solutions, and value-based care models, given the substantial long-term growth forecast for healthcare analytics and technology-driven efficiencies.
• Consider evaluating specific stocks such as GeneDx (WGS), CVS Health (CVS), and BrightSpring Health Services (BTSG), which have demonstrated strong earnings growth potential and strategic positioning to capitalize on industry trends like AI in diagnostics and diversified healthcare delivery.
• It is crucial to monitor the ongoing impact of healthcare labor shortages and wage inflation on operational costs, while also recognizing potential opportunities arising from the increasing demand for specialized nursing professionals and technology-enabled care solutions.
• The industry's current forward P/E ratio of 14.6X, which is below both the S&P 500 and its sector average, may present a comparatively attractive valuation for investors with a long-term horizon, particularly when weighed against its recent market underperformance and future growth prospects.