2 Beaten-Down Artificial Intelligence (AI) Stocks for Contrarian Investors to Consider Buying

One way to capitalize on the artificial intelligence (AI) industry is to invest in companies that could benefit from the technology, have lost significant market value in recent years, and could bounce back to deliver solid returns over the long run. Do Recursion Pharmaceuticals (NASDAQ: RXRX) and Fiverr (NYSE: FVRR) belong to that group? Both companies are facing headwinds that have sent their stock prices down significantly, but if they can recover, buying their shares on the dip may be an excellent move. Let's find out what's going on with Recursion Pharmaceuticals and Fiverr and why contrarian investors may want to keep an eye on them.

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1. Recursion Pharmaceuticals

Recursion Pharmaceuticals is an AI-focused biotech company looking to revolutionize how we develop drugs. It's arguably long overdue. Despite technological advances, the cost and time required to develop novel medicines have increased, a phenomenon known as Eroom's law. Perhaps AI will finally help change that. Recursion Pharmaceuticals uses an AI-powered algorithm that continuously runs virtual experiments to select which candidates to send to clinical trials.

Most new compounds that enter the clinic never make it to market, but the biotech hopes to improve its success rate in this area compared to the industry average, thanks to its differentiated approach. If it can, the company will launch drugs much faster than its peers while generating stronger margins and profits. However, despite Recursion Pharmaceuticals' ambitious goals, the company has yet to produce much tangible evidence that its strategy can work. It has no approved products, and none in late-stage studies either.

Further, pharmaceutical leaders with much deeper pockets than Recursion Pharmaceuticals are recognizing the potential of AI in drug development and are working to incorporate the technology into their day-to-day operations. Some have already done so. Eli Lilly (NYSE: LLY) built the industry's most powerful supercomputer. Recursion Pharmaceuticals could still find success if it makes meaningful clinical and regulatory progress over the next few years.

Some of the company's candidates look rather promising. For instance, the company is developing REC-4881 for the treatment of familial adenomatous polyposis (FAP). This rare disease leads to precancerous gastrointestinal polyps forming in the colon and rectum, and usually eventually leads to patients getting colorectal cancer. There is no approved medicine in this niche, but REC-4881 has shown promise in clinical trials by significantly reducing polyp burden.

If this candidate succeeds and earns approval, it will help validate Recursion Pharmaceuticals' approach and probably send its share price soaring. So, there is ample upside potential here, but there is also plenty of risk, as Recursion might run into clinical or regulatory roadblocks that could sink its stock price further. The stock isn't for risk-averse investors, but those with a strong tolerance for volatility may consider it.

2. Fiverr

Fiverr is a platform that connects freelancers with clients who need their services. The company initially got a bit of a boost thanks to AI. Smaller businesses that need AI services but don't have the means to hire entire teams of PhD experts have turned to Fiverr to find qualified freelancers who can get some of the work done for less. However, Fiverr is facing several headwinds. The company's revenue is moving in the wrong direction, while active buyers on its platform are also declining.

Can Fiverr successfully bounce back from recent woes? The good news is that Fiverr is implementing various initiatives that management believes will improve its financial results and prospects. For instance, the company is increasingly becoming a platform where clients go to for complex projects. Note that this is a significant shift in strategy. Fiverr's name originally came from the fact that freelance services on its platform had a starting price of $5. It was sought after for quick, relatively easy, one-off gigs. Now, projects worth $1,000 and more are growing rapidly on the platform, and management is doubling down.

Fiverr hopes that these and other initiatives will help boost engagement and spend per buyer on the platform. It's also worth noting that despite its revenue moving south, Fiverr's net income improved during the first period. Earnings per share were $0.23, significantly higher than the $0.02 reported in the year-ago period. Fiverr plans on maintaining this disciplined approach even as it seeks to improve its business.

Even so, there are significant risks ahead. Despite the company's efforts, revenue and active buyers may continue declining. Further, although AI-related projects on its platform have sometimes helped, AI has also hurt the freelance landscape, as businesses increasingly rely on AI to complete projects that would previously have required freelancers. That's probably why Fiverr is focusing on more complex jobs that AI can't easily do, and if the company's new strategy works, its share price could climb significantly over the next five years. Contrarian investors may consider initiating a small position in the stock.

Prosper Junior Bakiny has positions in Eli Lilly and Recursion Pharmaceuticals. The Motley Fool has positions in and recommends Eli Lilly and Fiverr International. The Motley Fool has a disclosure policy.