Let’s be clear about one thing. Schrödinger (SDGR) isn’t an AI stock. That’s what they emphatically told us the last time we implied such a thing, and it’s admirable in an environment where every single company is plastering “generative AI” across their investor decks in hopes of attracting more dollars. What Schrödinger does is utilize software simulations to help drug developers better predict which novel molecules will successfully pass the FDA drug approval gauntlet. Their business model captures value from software licensing annual contracts (software), and downstream royalties and milestone payments (drug discovery). After showing strong double-digit growth for the past five years, Schrödinger may now see negative growth based on the middle of their 2024 guidance.
And that coincides perfectly with our annual check-in with one of the 37 disruptive tech stocks we’re currently holding.
Software Growth Stalls
The drop in revenue growth is a concern, especially considering that everywhere we look software is transforming how companies do business. In SDGR’s year-end earnings call, the first analyst out of the gate nailed it with an excellent question. How should investors think about SDGR’s software guidance of 6% to 13% given a) the company’s past strong revenue growth and b) the recent industry-wide AI momentum?
These questions are important because we can’t answer them looking in from the outside. While dru