Can This Beaten-Down AI Stock Bounce Back in 2026?

Recursion Pharmaceuticals (NASDAQ: RXRX) is a small-cap biotech with a mission. The company is looking to revolutionize the way we develop drugs through the use of artificial intelligence (AI). However, the company has had little success so far. Last year, Recursion Pharmaceuticals' shares fell significantly. Could the company bounce back this year?

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There could be some clinical progress

Recursion Pharmaceuticals uses an AI-powered operating system to test clinical compounds. The most promising get sent to clinical trials. The typical success rate for new compounds entering the clinic isn't high. Most never make it to the market. Recursion argues that its approach could boost the probability of success while also cutting the time and money typically spent on preclinical studies. If the biotech is right, it could transform the pharmaceutical industry.

But do we have good reasons to believe Recursion will achieve its goals? Not so much. Recursion Pharmaceuticals' most advanced candidates are currently in mid-stage studies. We could see several data readouts through the next year or so. For instance, Recursion Pharmaceuticals expects results from a clinical trial for REC-1245, a potential cancer medicine, during the first half of the year. It could also see a data readout from a study of REC-102 -- a potential medicine for a disease called hypophosphatasia (which weakens patients' bones and teeth) -- during the second half of the year.

It's important to note, though, that these will be phase 1 data readouts. These are unlikely to move the stock significantly, since early-stage studies tend to focus on safety and tolerability rather than efficacy.

The market is quickly evolving

Whatever clinical progress Recursion Pharmaceuticals will make this year should be pretty modest. Meanwhile, the company is increasingly facing competition, especially from Eli Lilly. The pharmaceutical giant is currently building the industry's most powerful supercomputer. One of Recursion Pharmaceuticals' long-term goals is to license its AI models to other drugmakers once it proves the value of its approach.

But if other companies develop platforms that rival its own, that will be a much tougher task. Eli Lilly has far more resources -- including cash and clinical trial data to train its AI models -- than its much smaller competitor. But we're getting way ahead of ourselves. Recursion Pharmaceuticals has no approved products. It isn't currently running a phase 3 study either.

Whatever licensing ambitions it has for the future, it will have to cross these milestones first. And despite its claims that AI can help improve things, it hasn't proven that yet. In other words, the stock is very risky right now. Will Recursion Pharmaceuticals bounce back this year? Probably not. Is the stock worth buying and holding on to for a while? Maybe, and only for investors comfortable with heightened risk and volatility.

Prosper Junior Bakiny has positions in Eli Lilly and Recursion Pharmaceuticals. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.