Shares of Doximity Inc. surged more than 130% in premarket trading on Friday after the digital medical platform reported strong quarterly results and revealed that its new AI-powered search product is highly profitable. The stock gave up some of those gains after the market opened, but the rally reflects growing expectations that the company's AI investments could expand its market while supporting stronger long-term margins.
CEO Jeffrey Tangney said Doximity is generating more than 10 times the revenue per AI search than the cost of running it. The comments came during the company's first-quarter fiscal 2027 earnings call on Thursday.
"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," Tangney said.
He added that AI costs could decline further as models become more efficient, potentially improving the product's economics over time.
Doximity Raises Revenue Outlook
The AI opportunity comes on top of an already strong quarter. Doximity reported first-quarter revenue of $156.6 million and adjusted EBITDA of $74.8 million, with both figures exceeding consensus estimates.
The company also raised its full-year fiscal 2027 revenue guidance by $6 million, or about 5%, to a range of $671 million-$681 million. However, analysts believe the upgraded guidance may not fully reflect the potential contribution from Doximity's expanding AI business.
Piper Sandler analyst Jessica Tassan said the guidance increase was largely driven by the first-quarter beat and did not include a significant contribution from the growing AI commercial pipeline discussed by management. She described the company's approach to forecasting AI search revenue as conservative. That leaves room for the AI product to become an additional growth driver if adoption accelerates.
AI Search Could Expand Doximity's Market
Tangney also indicated that AI search could extend beyond improving the economics of Doximity's existing business. He said the technology had unexpectedly expanded the company's total addressable market across the healthcare and pharmaceutical sectors.
Michael Cherney of Leerink Partners said the AI search product is strengthening confidence that Doximity's increased investment in AI for Healthcare could ultimately support attractive long-term margins.
The economics are notable because AI products typically require significant computing resources. If Doximity can generate substantially more revenue from each search than the cost of operating it, rising usage could translate into meaningful incremental profitability. Tangney expects the cost side to improve as Generative AI and LLM models become more efficient.
Short Sellers Add Fuel to Doximity Rally
The sharp move in Doximity shares may also have been amplified by positioning in the stock. Around 17% of Doximity's freely tradable shares were sold short heading into the earnings announcement, according to FactSet.
The stronger-than-expected results and bullish comments around AI could have forced some short sellers to buy back shares to close their positions. Such buying can accelerate a stock's rise, creating what is commonly known as a short squeeze.
Doximity had entered Friday's session under considerable pressure. The stock was down around 50% for the year before the latest earnings report, with the company valued at about $3.9 billion before the surge.
The combination of heavy short interest, strong quarterly numbers and the unexpectedly high profitability of its AI search product created a powerful catalyst for the stock.
Doximity Stock Performance
As of 12:06 p.m. GMT-4 on Friday, Doximity was trading at $27.79, up 34.51%, or $7.13, from the previous close of $20.66. The stock opened at $38.86 and touched an intraday high of $40 before falling to an intraday low of $27.75. Its 52-week range stood at $17.15-$76.51.
Why this matters for healthcare professionals
Doximity's AI search economics suggest that AI-powered clinical tools can be financially viable, not just technologically impressive. For healthcare professionals evaluating AI vendors, the key question is whether a product's revenue potential justifies its cost - and Doximity's 10x return on AI search indicates that clinical AI can deliver real margins when it solves a specific workflow problem. The company's expanded addressable market also hints that AI tools built for clinicians may find broader uses across pharma and life sciences than originally planned.
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