2 Digital Healthcare Stocks Poised for a Breakout

Key Points

• Healthcare technology companies are transforming patient access and care delivery, creating massive addressable markets worth hundreds of billions of dollars.

• Digital-first platforms can scale rapidly without the infrastructure costs of traditional healthcare providers, enabling superior unit economics and profit margins.

• Regulatory challenges and competitive pressures create temporary volatility that often presents compelling entry points for long-term investors.

• 10 stocks we like better than Oscar Health ›

Wall Street loves to punish healthcare stocks for short-term stumbles while missing their revolutionary potential. The sector's reputation for regulatory complexity and unpredictable reimbursement changes has created a risk-averse investment environment that consistently undervalues companies building the future of American healthcare.

This myopic view ignores a fundamental shift happening beneath the surface. Healthcare technology companies are dismantling decades-old barriers between patients and care, creating direct-pay models that bypass insurance bureaucracy entirely.

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While traditional healthcare stocks trade on Medicare Advantage enrollment growth and medical loss ratios (MLRs), these digital disruptors are building subscription-based businesses with software-like economics and massive total addressable markets.

Two companies exemplify this transformation -- one sustaining strong profitability while navigating industry headwinds, the other riding explosive growth despite recent partnership drama. Both face meaningful risks that create entry opportunities for investors who understand the long-term digitization trends reshaping American healthcare.

Oscar's profitable start meets cost pressures

Oscar Health (NYSE: OSCR) built on its profitable start to 2025 with a strong first quarter, though emerging challenges in Q2 have tempered the momentum. The company reported $3 billion in revenue -- a 42% year-over-year increase -- and $275 million in net income, up from $177 million the previous year.

This 55% profit growth underscores Oscar's scalable technology model, but investors should also consider recent indications of cost pressure and volatility. The company's MLR rose to 75.4% in the first quarter, still within industry norms but now expected to increase further, with full-year MLR guidance revised upward to 86% to 87% due to Q2 trends. This dramatic guidance revision signals significant cost headwinds that could pressure margins throughout the year.

Oscar's differentiation lies in its digital-first infrastructure, built specifically for the digital age. Unlike legacy insurers, Oscar designed its operation around digital-first member engagement -- leveraging telemedicine, artificial intelligence (AI)-powered health assessments, and predictive analytics. This approach has enabled the company to serve approximately 2 million members while maintaining competitive administrative expense ratios.

The +Oscar platform remains a compelling long-term opportunity, offering potential to license care navigation and engagement tools to third-party providers. While this strategy could create high-margin software revenue, monetization beyond internal use is still in early stages. Its success may prove essential as potential changes to Affordable Care Act subsidies introduce new uncertainties to the individual insurance market.

Hims navigates explosive growth and regulatory crosswinds

Hims & Hers Health (NYSE: HIMS) has delivered a dramatic performance through 2025, highlighting both the explosive potential and inherent risks of disruptive healthcare models. The stock reached an all-time high of $72.98 in February before encountering significant turbulence from regulatory scrutiny and partnership disputes.

The company's underlying business growth remains exceptional despite headline challenges. First-quarter revenue surged 111% year over year to $586 million, while adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) nearly tripled to $91 million. More importantly, Hims & Hers expanded its subscriber base to 2.4 million customers -- a 38% increase -- with nearly 60% now using personalized treatment solutions that command premium pricing.

However, the Novo Nordisk partnership termination in June caused a major decline in the stock. This dispute over Hims & Hers' continued sale of compounded weight-loss medications exposes the company's central vulnerability: regulatory dependence on legally gray areas of pharmaceutical compounding.

Beyond weight management, Hims & Hers has systematically expanded into mental health, dermatology, and hormone replacement therapy -- with over 80% of 2024 revenue coming from non-GLP-1 sources. Each vertical leverages the company's direct-to-consumer infrastructure, creating cross-selling opportunities that increase customer lifetime value. Yet, this expansion strategy faces intensifying competition from well-funded digital health competitors and increasingly digital-savvy incumbents.

Weighing the digital healthcare transformation

The healthcare technology revolution creates compelling investment opportunities for investors who can tolerate regulatory uncertainty and competitive pressure in exchange for exposure to transformative business models. Oscar Health offers a mature, profitable approach to technology-enabled insurance with multiple avenues for margin expansion and revenue diversification. The company's established market position and strong balance sheet provide defensive characteristics, while its technology platform positions it to capture value from healthcare's digital transformation.

Hims & Hers provides higher-risk, higher-reward exposure to the direct-pay healthcare revolution, where patients increasingly bypass insurance for convenient, affordable treatments. The company's ambitious 2030 targets of $6.5 billion in revenue and $1.3 billion in adjusted EBITDA reflect management's confidence in expanding beyond specialty medications into comprehensive primary care services.

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George Budwell has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Hims & Hers Health. The Motley Fool recommends Novo Nordisk. The Motley Fool has a disclosure policy.