Healthcare AI startups continue to command strong investor interest while gaining more adoption across providers, payers and pharmaceutical companies.
In the first half of this year, about 58% of all healthcare fundraising deals involved AI companies, marking a record pace. There were also at least 10 healthcare AI startups that reached valuations higher than $1 billion over the past year, as well as at least five multi-billion-dollar healthcare AI exits in 2025, according to recent data.
With a flood of AI companies vying for attention in healthcare, both investors and customers have to discern which tools deliver value versus those that are more hype than help.
Morgan Cheatham, partner and head of healthcare and life sciences at Breyer Capital, noted that the distinction between AI-first and AI-enabled reveals a company’s center of gravity, from which strategy naturally flows.
“AI-first companies advance the science of computation, while AI-enabled companies excel at implementation and distribution. In practice, it is less a binary and more a spectrum, with most enduring companies blending elements of both,” he explained.
This framing alone does not determine a company’s longevity, though.
In Cheatham’s view, the companies that last will be those with strong positioning and distribution — the ones controlling key leverage points such as where AI compounds, data originates, workflows are streamlined, and networks come together. He thinks this will create value that incumbents struggle to provide.
He highlighted AI-powered oncology diagnostics startup Artera, which is one of Breyer’s portfolio companies. The startup operates at the point where data is first created and undergoes a key transformation — turning human tissue into structured, clinically usable insights, Cheatham said.
“Controlling this conversion point gives Artera architectural leverage. Once raw data has been converted into clinically actionable information, every downstream workflow, from diagnosis to treatment planning to reimbursement, is shaped by it.” he explained.
It’s still important to remember that with incumbents like Epic and others such as Doximity and R1 RCM entering the healthcare AI arena, it’s difficult for emerging startups to compete on breadth, Cheatham added.
To him, their edge lies in occupying the positions that incumbents are too slow to reach, as well as finding ways to distribute that incumbents can’t easily replicate.
AI-driven clinical decision support platform OpenEvidence “demonstrates the power of nimble distribution” by delivering its product straight to clinicians free of charge, earning their trust at the point of care and bypassing the enterprise procurement process, Cheatham noted.
He also praised Iterative Health, an AI startup offering tools for gastrointestinal care, for showing how a smart business model can pair advanced computer vision with clinical trial recruitment in a way that benefits both medical practices and trial sponsors. He pointed to clinical evidence company Atropos Health too, which demonstrates how one platform can serve both providers and pharma companies by generating real-world clinical evidence that each can use.
“In crowded verticals, data and trust compound faster in aggregated platforms than in fragmented point solutions, which is why consolidation, not collapse, is the default outcome. This blend of technical edge and economic alignment is precisely where startups can differentiate,” Cheatham declared.
He added that AI creates abundance, not scarcity.
When various companies chase the same vertical and operate on similar models, differentiation ends up eroding and markets tend to resolve to scale, Cheatham explained.
“Overhyped categories mark the places where market demand is clearest and entry points are most valuable. Even in a competitive landscape, this is prime real estate — the workflows everyone is fighting to own are the ones that matter most,” he remarked.
Margin pressure is always going to be more severe in healthcare, so buyers won’t really tolerate dozens of lookalike vendors. Instead, spending will concentrate on platforms that own key entry points and create value across different stakeholders, Cheatham stated.
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