Wall Street Lunch: AI-Designed Drugs Expected To See Trials This Year

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Isomorphic Labs expects clinical trials of AI-designed drugs in late 2025. (0:16) Apple cut to Sell at Jefferies. (2:16) MGM Grand Vegas set for major remodel. (4:08)

This is an abridged transcript of the podcast.

Our top story so far. Google’s DeepMind spinoff Isomorphic Labs expects clinical trials of drugs designed using AI to start late this year. That’s according to Bloomberg.

CEO Demis Hassabis said at a Davos panel, “We’ll hopefully have some AI-designed drugs in clinical trials by the end of the year. That’s the plan.”

Isomorphic is working on reducing the drug discovery process from a decade or more to “weeks or months,” said Hassabis, who, along with DeepMind scientist John Jumper shared the 2024 Nobel Prize in Chemistry with a U.S. professor for their research in forecasting protein structures.

AI’s ability to process large amounts of data can potentially help speed up the drug development process. But most major pharmaceutical companies have taken a measured approach to using the technology. A Bloomberg Intelligence report showed that preliminary data for clinical candidates has been mixed.

Alphabet created Isomorphic in 2021 to commercialize DeepMind’s AI for drug discovery.

In today’s trading, stocks are higher in choppy trading as the second Trump administration begins. The Dow (DJI) is faring better than the S&P (SP500) and the Nasdaq (COMP.IND).

In the Treasury market there is buying on the long end, with the 10-year yield (US10Y) falling again, back below 4.60%.

Clark Geranen, chief market strategist at CalBay Investments, says: “While Tuesday is the first trading session under Trump 2.0, markets are forward-looking, and much of the optimism over the potential for tax cuts and deregulation is already priced in, via the post-election stock market surge, which stocks have held onto for the most part.”

“While January has been volatile for stocks so far, as of now, the S&P 500 is positive for the month of January,” he said. “January’s performance tends to portend, at least historically, the market’s performance for the full year. The next 10-days will be important for markets.”

“For 2025, we are sticking with what works, which includes big-cap tech, financials and certain areas of healthcare that have exposure to AI. There is no need to stray from these areas of the market. We believe that what has worked over the past two years will continue to work in 2025.”

Among active stocks. Jefferies downgraded Apple (AAPL) to Underperform from Hold with pessimism on upcoming results and guidance. The firm also lowered the price target on the shares to $200.75 from $211.84.

Analysts Edison Lee said he has lowered his forecasts due to weak iPhone sales and the general consumer electronics market. Jefferies reduced its outlook for iPhone 17 and 18 due to slower AI uptake and commercialization.

He expects Apple to miss its revenue growth guidance of 5% for the first quarter of fiscal 2025 and guide to only low-single-digit revenue growth in the fiscal second quarter, also below consensus. He added that AI outlook is subdued, and industry checks suggest Apple’s advanced packaging roadmap for iPhone may face a delay.

3M (MMM) reported a quarterly profit that was better than analysts expected and predicted sales growth for the year ahead.

Management forecast adjusted EPS of $7.60 to $7.90 for the year ahead, compared with the consensus estimate of $7.80. Sales are expected to grow 0.5% to 1.5%.

D.R. Horton (DHI) posted better-than-expected earnings and revenue. The largest U.S. homebuilder also reiterated its guidance for FY2025 revenue of $36 billion to $37.5 billion, homebuilding operation closings of 90,000-92,000, and cash flow provided by operations greater than fiscal 2024.

It still expects to pay about $500 million in dividends during the fiscal year. And it boosted its outlook for common stock repurchases to $2.6 billion to $2.8 billion from its previous guidance of about $2.4 billion.

And Argus is getting bullish on The Gap (GAP), raising the stock to Buy, saying the company’s turnaround is gaining momentum.

Analyst Christine Dooley said shares offer value at their current trading level, having lagged the market badly over the past five years. Dooley also thinks management has done a good job of revitalizing brands.

In other news of note, MGM Resorts (MGM) plans to remodel one of its most well-known Las Vegas Strip properties. The MGM Grand Hotel & Casino is set for a $300 million remodel that encompasses all the hotel’s 4,212 rooms and suites within its main tower. LED art pieces in the corridors will be reminiscent of the disco era, according to the casino operator.

The remodel will result in the creation of more than 111 new suites, ranging in size from 675 to 2,572 square feet. The transformation is expected to be completed by December 2025. The first phase of the main tower’s newly remodeled rooms will be available for reservation beginning March 1. The company said the remodeled rooms will join a lineup of new dining and entertainment experiences set to open at MGM Grand later in the year.

MGM Grand Chief Operating Officer Mike Neubecker noted that the renovations will reflect that the average Las Vegas visitor profile has changed significantly over time.

“We have a lot of travelers coming to Las Vegas who are high-spend, non-gamblers. They’re coming here for experiences, or they’re a foodie, or they’re (here for) entertainment or sports. They aren’t afraid to spend for good experiences and, at the end of the day, this new room product will be able to deliver that.”

Looking ahead, the MGM Grand will be very close to Major League baseball when the Las Vegas A’s start hosting games in 2028 at a new stadium located at the corner of Tropicana Avenue and Las Vegas Boulevard South.

And in the Wall Street Research Corner, Bank of America issued its best stock ideas for 2025, a year in which it foresees a “cyclical inferno” driving the S&P 500 up by more than 10% from current levels.

Strategist Savita Subramanian has a year-end target of 6,666 for the benchmark index.

BofA is Overweight Consumer Discretionary (XLY) and Financials (XLF), among other sectors that will benefit from a cyclical swing.

The consumer picks include AutoNation (AN), BellRing (BRBR), McCormick (MKC), Philip Morris (PM), Starbucks (SBUX), United Airlines (UAL) and Walmart (WMT).

The financial names include Block (SQ), Progressive (PGR), and Wells Fargo (WFC).