Consistent with a recent regulatory filing, chipmaker Nvidia (NASDAQ: NVDA) now owns a stake in Nano-X Imaging (NASDAQ: NNOX), a small Israeli medical device company that makes X-ray machines. While the investment was modest, that didn’t prevent investors from reacting ebulliently to the news — Nano-X’s shares skyrocketed greater than 50% the subsequent day.
Does Nvidia’s involvement have the potential to be transformative for the smaller business, and is it possible that there may be more upside in store for shareholders? Or is the market missing something?
A collaboration may be big, if it actually exists
It’s value noting that Nvidia’s shares of Nano-X are value a grand total of $379,856, which is barely a smidgen in comparison with its market cap of around $572 million. So at first glance, it looks identical to the market is massively overreacting since it’s difficult to assume precisely what the company could even do with such a small investment. Still, appreciating the context is significant to understanding why the market will not be entirely excessive with its aggressive bidding.
In case you are usually not familiar, Nano-X’s business model is a bit unique. Fairly than manufacture its low-cost X-ray machines and sell them to customers, it doles out hardware with the goal of capturing revenue each time a customer performs a scan. Inside the U.S., each scan costs on the order of $30, however it surely’s likely cheaper elsewhere. The company has also decided to experiment with its model somewhat throughout the U.S., where it charges customers a small amount for equipment and installation along with for scans.
The advantage of this model is that the business can access a much larger market — many healthcare systems in developing countries and rural areas of the U.S. could definitely make use of an X-ray machine, but they often lack the capital to buy them.
Recognizing that its goal customers are unlikely to have many spare radiologists within the event that they don’t already have basic imaging technology available, the company could be developing artificial intelligence (AI) systems and human-provided teleradiology services to remotely analyze the photographs generated by its hardware.
That may be one explanation for Nvidia’s interest as the company is keen to put money into many different AI applications. Pairing Nvidia’s acumen with AI together with Nano-X’s widely distributed scanning hardware — if that’s what the two firms consider — could thus be helpful for every organizations, especially if it allows Nano-X to eventually offer a product that eliminates the need for radiologists entirely. Neither company has made any comment.
In 2017, Nvidia invested in a single other Israeli company, Zebra Medical, which was focused on using AI for interpreting scan imagery. Then in 2021, Nano-X purchased Zebra Medical using its stock, so Nvidia received its shares. It’s extremely possible that the one reason it reported its stake in February was that the dimensions of its investment portfolio grew to be value greater than $100 million, which is the cutoff after which it may be required to make a regulatory filing.
Consider circling back in plenty of quarters
Nvidia is a powerful company, however it surely will not be yet a kingmaker, at least not throughout the medical device industry. It’s true that Nano-X could stand to increase the dimensions of its addressable market by bolstering its offerings with Nvidia’s AI capabilities if that were to occur. But that elides a more significant issue for investors, namely that Nano-X has not proven its business model is certainly viable.
While the Nanox.Arc, its x-ray platform, is approved by the Food and Drug Administration (FDA), its business global launch has been much slower than anticipated. Consistent with the Q3 report, its quarterly revenue of $2.5 million in 2023 was barely higher than 2022’s haul of $2.4 million within the equivalent quarter.
What’s more, $2.2 million of its third-quarter revenue was from its teleradiology services, as was all of its revenue a 12 months prior. Only $99,000 was derived from equipment sales and installation fees. Likewise, while its AI solution for analyzing scans of people’s livers has the stamp of regulatory approval, it has not driven faster revenue growth yet either.
In other words, this business is just not yet profitable or self-sustaining, and so it’s a dangerous investment. Without the core economic proposition validated — that it could earn extra money on scans than it costs to provide and install the scanning hardware — it’s hard to be keen about investing.
Nonetheless, if over the following couple of quarters Nano-X’s scan revenue growth starts to hurry up sharply — and there could also be likelihood it might based on its growing sales force and up up to now agreements with medical device makers — shareholders who began a position will probably get wealthier.
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Alex Carchidi has no position in any of the stocks mentioned. The Motley Idiot has positions in and recommends Nvidia. The Motley Idiot has a disclosure policy.
Nano-X Imaging Could Be Teaming Up With Nvidia, and Its Stock Is Flying. Can It Proceed? was originally published by The Motley Idiot