RBC analysts argue that large-cap U.S. pharmaceutical firms offer a combination of defensive market exposure and upside to earnings as artificial intelligence changes how drugs are developed. They note that the sector is trading at roughly a 25% discount to its 10-year average, even as earnings momentum improves and companies hold more than $1 trillion of balance sheet capacity for potential acquisitions.
The bank quantifies potential benefits from AI, estimating about $90 billion in cost savings across U.S. pharma over five years. Those efficiencies, RBC says, could translate into 5% to 13% accretion in earnings per share and produce 12% to 25% upside to discounted cash flow valuations.
RBC breaks down the operational impacts it expects AI to deliver: a 30% to 40% shortening of preclinical timelines, a 20% to 30% reduction in development costs through more efficient clinical trials, and an improvement in manufacturing margins of 200 to 300 basis points. The analysts point to early adopters, including Eli Lilly and Merck, as companies already moving AI-designed molecules into clinical testing on an accelerated timetable.
On individual stock recommendations, RBC gives Eli Lilly an Outperform rating with a $1,250 price target. The firm highlights Lilly’s obesity franchise and the prospect of an oral GLP-1 candidate, orforglipron, coming to market. RBC forecasts Lilly’s revenue to compound at 14% toward 2033, a trajectory it says is supported by patent protection and manufacturing scale.
AbbVie also carries an Outperform rating and a $260 target from RBC. The analysts contend that concerns about slowing immunology growth are overstated and emphasize continued expansion of Skyrizi and Rinvoq, robust cash flow generation, and a limited schedule of near-term patent expiries.
Merck receives an Outperform rating with a $142 target, with RBC citing what it views as underappreciated depth in the company’s pipeline.
By contrast, Bristol Myers Squibb is given a Sector Perform rating and a $60 target. RBC says the stock’s recent rerating appears driven by positioning ahead of imminent late-stage trial results, but that further upside will depend on pipeline success to offset roughly $30 billion in expected patent losses through 2030.
RBC assigns Pfizer an Underperform rating with a $25 target. The firm projects a $15 billion to $20 billion revenue headwind through 2030 from patent expiries, and notes limited visibility on meaningful pipeline replacements before 2028.
Separately, the research note references an AI-driven stock selection tool that evaluates companies such as Lilly across more than 100 financial metrics. That tool, the note says, uses AI to identify stocks offering favorable risk-reward profiles based on current data, and cites past notable winners including Super Micro Computer, which returned +185%, and AppLovin, which returned +157%.
Clear summary
RBC views large-cap U.S. pharma as a defensive sector with material earnings upside from AI-enabled efficiencies and substantial acquisition firepower. The bank issues Outperform ratings on Eli Lilly, AbbVie and Merck, a Sector Perform on Bristol Myers Squibb, and an Underperform on Pfizer, each with specific price targets and stated drivers.