Despite healthy prospects and long-term drivers, healthcare stocks have been under the weather in recent years. Yet, continued innovation and new technology applications in the sector could help revive it.
By examining a range of different perspectives, savvy investors can identify opportunities amid the volatility and disruption that are likely to occur in the revitalisation of the healthcare ecosystem.
Favourable market drivers
Having surged during the pandemic, global health spending then declined, as high inventory levels limited demand for healthcare products. Yet, in 2022, expenditure still reached USD 9.8 trillion or 9.9% of global GDP1, and this figure is projected to reach USD 11 trillion by 20302.
Propelling this growth in expenditure is one irrefutable driver: the global population is ageing rapidly. By 2030, 1 in 6 people in the world will be aged 60 years or over, representing around 1.4 billion3. And by 2050, the number of persons aged 80 years or older is expected to reach 426 million4. As people age, they are more likely to experience one or several health conditions, which will further boost demand for healthcare products and services, positively impacting the sector’s earnings potential.
Even so, that potential has not necessarily translated into strong market returns. In 2024, the sector’s modest returns were eclipsed by those of the wider market, particularly following President Trump’s election victory as investors anticipated funding cuts to US Medicaid and changes to healthcare regulation. However, several macro, fiscal and market tailwinds are now proving supportive.
Historically, healthcare stocks have tended to outperform when central banks cut rates – a cycle that started in the second half of last year and is forecast to continue throughout 2025. Additionally, economic uncertainty tends to steer investors towards the defensively orientated healthcare sector, as demand for its products and services is relatively inelastic compared to more cyclical industries. Sector mergers and acquisitions (M&A) are also set for a revival. While the uncertain economic and geopolitical backdrop may cause companies to pause before embarking on major structural changes, many pharmaceutical companies are facing a patent cliff at the end of the decade, driving a need to reinforce pipeline depth through acquisitions. In fact, 80% of respondents in KPMG’s Healthcare and Life Sciences Investment Outlook indicated they planned to increase their M&A activity in 20255. Finally, on the fiscal front, we are seeing major integration of nations’ healthcare systems, requiring long-term investment from governments. One example of this is the UK government’s GBP 600 million plan to set up a central research service for health data storage in a bid to streamline access to public medical information6.
Overall, the sector’s prospects and attractive relative valuations, as well as its more defensive market attributes, provide a compelling setup for investing in the sector.
Digital transformation
Right now, the healthcare system is feeling the strain from rising demand and limited resources. The need to improve operational efficiency and boost productivity has been highlighted by health system leaders as the top priorities for 20257. A key focus will be the shift from analogue systems to a more digitised service by investing in next-generation technological solutions.
Advancements in artificial intelligence (AI) are already cascading down to the healthcare industry and enabling additional capabilities and efficiency improvements. AI has already proven to be effective in simplifying complex diagnostics and analysing CT and MRI scans. Robotic technologies are being used for minimally invasive surgery, standardising surgical outcomes and offering the potential for improved long-term outcomes based on the ability to utilise artificial intelligence to analyse data from its installed base of instruments.
The Internet of Things is also bringing better healthcare into our homes, as well as contributing data to medical databases. These days, it is not uncommon for diabetic patients to use continuous glucose monitors to control their blood glucose levels and send alerts if levels become abnormal. Connected contact lenses offer an alternative, non-invasive method of diabetes management. Smart inhalers objectively track, monitor and prompt medication use, and have the potential to prevent asthma flare-ups in children. In addition, software applications utilising the inbuilt cameras of mobile phones can measure various vital signs.
As the use of digital and AI-driven technology increases within the healthcare system, the role of data will become more critical. Enabling more personalised treatments, optimising healthcare delivery and improving patient outcomes.
Innovation in treatments
The treatment of disease and chronic conditions is also being disrupted by innovation.
Pulsed field ablation is an upcoming alternative treatment for atrial fibrillation (AF) – where a rapidly beating heart is unable to slow down. Historically, physicians have tried to ablate the heart directly using either radio frequency (heat) or cryo energy (cold), but these modalities yield sub-optimal safety. Pulsed field ablation represents a new ablation energy source offering better efficacy without compromising on safety. Not only does the technology appear to offer better clinical outcomes, but it is also faster to perform, meaning the number of AF ablation procedures will grow significantly.
Antibody-drug conjugates offer a new type of targeted cancer therapy – aiming to replace traditional, systemic chemotherapy treatments by chaperoning the therapeutics directly to the cancer cells while mitigating the amount of systemic circulation and minimising damage to healthy cells. Biopharmaceutical companies are also trying to reset the immune system to better manage autoimmune diseases. Many such conditions result from a patient’s own memory B cells, as part of an accidentally learned response, inappropriately producing antibodies that attack the patient’s own tissues. Immunologists are exploring the use of engineered T cells and T cell-engaging antibodies to deplete these B cells, thus restoring the immune system.
Such innovations, and their successful and widespread adoption, will inevitably be a key driver of earnings and sector performance going forward.
Benefiting from long-term healthcare innovation
Innovation offers a restorative tonic for the healthcare industry. As they are less tied to macroeconomics, the companies providing these new healthcare solutions offer defensive characteristics that could provide some welcome relief amid the tough broader market conditions.
At BNP Paribas Asset Management, we are both excited and challenged by the opportunities that lie ahead for the healthcare ecosystem. Combining technological disruption with digitisation and scientific breakthroughs, the sector is set to be revolutionised for the better – both in the way it operates and through the treatments it offers.
The team behind our Healthcare Innovators strategy are experienced in finding the companies leading this transformation, while avoiding the laggards. By combining multiple perspectives with fundamental research, we seek to identify the companies with competitive advantages trading at attractive valuations that are set to benefit from the growth of long-term healthcare innovation.
[1] WHO Releases Global Health Expenditure Report 2024 on Universal Health Coverage Day (12 December 2024) | communitymedicine4all
[2] Future health expenditure in the BRICS countries: a forecasting analysis for 2035 – PMC
[3] Ageing and health
[4] Ageing and health
[5] 2025 KPMG Healthcare and Life Sciences Investment Outlook
[6] https://www.ft.com/content/a92834de-9207-4919-94ed-6224896b9749
[7] 2025 global health care outlook | Deloitte Insights