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After the Pelotons (PTON) and Zooms (ZM) of the world enjoyed their glorious time in the pandemic sun, GLP-1 makers and AI companies stepped in to fill the void. But while the tech trade is proving resilient, even unstoppable, the firms that gained by helping people lose weight are faltering.
Hims & Hers Health (HIMS) fell as much as 5% Tuesday after the company reported revenue that missed expectations. Novo Nordisk (NVO), the drugmaker that ended a short-lived partnership with Hims and is entangled in a corporate quarrel with it, has also suffered, slashing profit forecasts for the weight-loss drug Wegovy and its diabetes treatment Ozempic. That stock is down more than 40% for the year and is reporting results this morning.
The tumble highlights the diverging paths between what used to be the two hottest trades of the post-pandemic market.
From a certain vantage point, the resounding early success of GLP-1 drugs was a perfect foil to the excesses of AI hype. Here we had IRL results, immediate and apparent, a breakthrough medical technology that helped people in ways that were easy to understand. The treatments, in some cases, made it easier for patients to curb destructive appetites. Meanwhile, for tech skeptics, the tens of billions of dollars thrown AI’s way was an indulgence of Silicon Valley’s worst fantasies. But now the GLP-1 trade is the one that’s wavering.
The AI trade is not only flashing its staying power, as the tech giants post impressive earnings, but is acting like ballast amid trade and economic uncertainty. Tech tickers are the vanguard of the bull market and a calming force in the storm.
Tech titans don’t claim to have a wonder drug. But that appears to be a strength, not a weak point. As mature, profitable companies, their AI businesses are pitched as extensions of their core operations and ethos. AI tech functions as variations and augmentations of their existing cloud, advertising, and search lines.
In that light, GLP-1 makers resemble one-hit wonders, where the AI giants are artists with a multitude of records that still hit.
The market for weight-loss drugs also exhibits signs of a zero-sum frenzy, where one company’s success — promising results for a pill-based drug over injectables, or fewer side effects — is another’s setback.
Tech bulls, in contrast, say that Nvidia and the tech giants create huge downstream value for software companies and others in the AI ecosystem.
“While the first steps in AI deployments are around Nvidia chips and the cloud stalwarts, importantly we estimate that for every $1 spent on Nvidia, there is an $8-$10 multiplier across the rest of the tech ecosystem,” wrote Wedbush analyst Dan Ives in a note ahead of tech earnings.
There are layers to the AI ecosystem, whereas GLP-1 drugs comprise one pie, and everyone is fighting for a bigger slice. (That’s an oversimplification, of course. This newsletter recently explored the media, lifestyle, and food system elements surrounding GLP-1s.)
Furious competition in GLP-1 drugs impacts pharma companies in ways that may seem quaint to megacap tech firms. Sure, upstarts like OpenAI and Anthropic are aiming to upend the entrenched power of the tech giants. But seizing market share from the likes of Meta, Google, and Amazon is a different endeavor.
The new class of drugs may end up having far-reaching consequences, while the pursuit of a new class of tech-infused intelligence could devolve into a very expensive development run.
But investors have already declared which story they believe will be the more lucrative one. Dreams and abstract potential will always be worth more than anything you can see.
Hamza Shaban is a reporter for Yahoo Finance covering markets and the economy. Follow Hamza on X @hshaban.
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