Tenet Healthcare: Caught Between AI Hopes and Healthcare Reality

Investors are constantly seeking safer ways to benefit from the current AI boom that has flooded U.S. stock markets in recent months. In a recently released investor report, Goldman Sachs highlighted that AI tools could help companies outside the technology sector increase productivity and reduce labor costs. This analysis emphasizes that the market has yet to adequately recognize the potential of companies utilizing downstream AI. David Kostin, Chief U.S. Equity Strategist at Goldman, outlined the trajectory of the AI boom in four key phases. While the first phase was dominated by companies such as NVIDIA, which are central to building AI data centers, the second phase has now entered the field of infrastructure development. Companies in the semiconductor, data center, network, cloud, and security sectors have experienced significant value increases. According to Kostin, the third phase will be characterized by companies integrating AI into their products to boost sales. However, he warned that these firms have recently lost ground against AI stocks. Companies in the fourth phase, which could realize productivity gains through the adoption of AI, have so far been overlooked by most market participants. Kostin emphasized that it is unclear when exactly these companies will break through and expand their profit multipliers—but it will happen. This is illustrated by the development of the industrial sector: since the beginning of 2023, industrial stocks have risen nearly 30% in value, while companies directly related to AI technology have more than doubled in value. Within this context, Tenet Healthcare Corporation is in focus. Tenet recently agreed to sell 70% of its majority stake in Brookwood Baptist Health in Birmingham for approximately $910 million to Orlando Health. The transaction includes five hospitals, as well as associated physician practices and other operations, and is expected to close by the end of the year, subject to regulatory approval. Wells Fargo recently raised the price target for Tenet Healthcare to $175 and maintained an overweight rating, as hospital results and forecasts in the second quarter exceeded expectations. The advisors expect the fundamentals to remain strong in the second half of 2024, while they foresee a normalization in 2025/2026. Although Tenet Healthcare Corporation has significant investment potential, we believe that certain AI stocks are in the fast lane due to their higher projected returns and shorter time horizons.