Doximity’s proximity to greatness

You may not have heard of it before today, but Doximity just became the hottest new AI play on the market.

Shares exploded as high as 130% in premarket trading, though they settled for a meager 32.82% gain today. Before this trading session, shares had slumped 50% this year.

The digital medical company didn’t announce it had cured a rare disease or constructed a rocketship destined for Mars. All the ruckus was caused by a comment from its CEO during the earnings call yesterday afternoon about Doximity Ask, the company’s AI search tool and assistant for medical professionals. And, like everything else in the land of AI, the frenzy is all about speculation.

“It’s early days on our AI search product, but I can tell you we’re earning more than 10 times per search in revenue than it costs,” CEO Jeff Tangney said yesterday on the earnings call. Tangney also referenced a study from researchers at Harvard and Stanford that showed Doximity’s clinical AI model beat a version from Anthropic, which predictably excited retail investors even further.

Reality check: The company’s Q1 was not exactly a home run. Doximity raised its full-year revenue guidance from between $664 million and $676 million to between $671 million and $681 million. But the company slightly missed adjusted earnings per share projections, which came in at $0.29, compared to the $0.30 analysts projected.

However, analysts also believe that forecast doesn’t even factor in Doximity’s AI search aspirations—which is, of course, the prospective cash cow traders are betting on.

The bears vs the bulls

While there’s no question that Tangney’s comments signal serious AI ambitions, some analysts are pouring cold water on retail investors’ exuberance.

“The market’s excitement around enterprise AI contracts is out of step with current revenue contribution (there is none), and from potential revenue contributions for the remainder of the year,” wrote Bank of America equity analyst Allen Lutz in a note today. “We expect the addition of an AI offering could cannibalize the core business, which would drive weaker returns on invested capital,” he added in a note reiterating his Underperform rating for Doximity.

Long story short: Another factor driving up Doximity’s price today is the unwinding of a sizable number of short bets on the business, which represented about 17% of its free float going into earnings, according to CNBC.

In some ways, the story of Doximity’s meteoric rise is representative of the larger AI narrative as a whole: Are the bulls going to ride their gains all the way to the top, or are the bears right to believe that anything that soars this fast has to crash at some point? Only time will tell.—LB