Aiforia Extensive Report: Track open for market takeover

Translation: Original published in Finnish on 4/23/2025 at 9:53 pm EEST.

Aiforia has become the market leader in clinical pathology image recognition, winning the majority of new contracts in the market in recent years. During the same period, the regulatory bottleneck that has been in the way of expanding the company's product portfolio has opened, enabling expansion in existing customers and larger deal sizes in future tenders. Although the trade war that has started will have a potentially milder negative impact on the market, we expect Aiforia's revenue growth to be on a strong footing in the near future. Supported by these drivers, we see the risk/reward of the stock at an attractive level. We revise our target price to EUR 4.2 (was EUR 4.4) and reiterate our Accumulate recommendation.

Aiforia operates in the digital pathology image recognition market with strong demand drivers

Aiforia’s software identifies the content of sample images from pathology laboratories at the cellular level and aims to analyze them faster, more efficiently and with better quality. Digitization in the field is at a very early stage, and in 2020, only 14% of pathology samples were digitized worldwide. However, the investment wave is ongoing. With an aging population, the need for pathology analysis is growing and there is already a shortage of pathologists, so there are clear demand drivers for solutions that increase efficiency and capacity. The demand for healthcare services, which in turn drive Aiforia's demand, is essentially non-cyclical, although the flare-up in the trade war could dampen investment in the sector and tariffs could slow sales of the scanners required to run its software.

Aiforia is emerging as the winner of the first wave of clinical digital pathology image analysis

The competitive landscape in the young market is just being formed. Given the competitive strengths of Aiforia's product (cell-level detection, deep learning models, extensive regulatory approvals at the sector level) and significant clinical references, the company has been well positioned to build a position as one of the long-term winners in the market. As such, Aiforia is taking a very strong position in the market, having won more than 50% of all new clinical customers in the sector between 2023 and Q1/2025, according to public data, and rapidly increasing its market share to 30%, becoming the joint leader in the sector, while its main competitor, Ibex, has been losing market share at a rapid pace.

Accelerating revenue growth is a matter of short time

We believe that Aiforia's revenue growth is accelerating, as the ramp-ups of won customers will be completed in increasing numbers in 2025 and the company's broader product portfolio enables gradual expansion within current customers. In our projections, growth will continue to be driven by Europe in 2025-26 and from 2027 onwards will expand more significantly into the US, where growth-supporting FDA approvals will take some time. We forecast a very strong annual revenue growth of 60-66% for 2025-28. We expect EBIT to turn positive in 2029 with the support of growth, and the company to carry out 20 MEUR (previously 15 MEUR) worth of share issues in 2025-26. Given the order backlog and the sector's strongest customer portfolio, we do not expect raising financing to be a challenge. We expect revenue in 2030 to already be 46 MEUR (target: >100 MEUR ~2030). This will naturally require a very strong strategy implementation and continued new customer wins from Aiforia.

Risk/reward remains attractive

Aiforia's valuation (2025-26e EV/S 23-16x) relies on expectations of very strong and scalable growth. By pricing growth at various rates and confidence intervals, we can justify the company's value at a wide range of EUR 1.0-7.4 per share (previously EUR 1.1-8.0). Our required return has risen mainly in line with the higher forecast risks from the trade war (WACC-% 13.5%, previously 12.7%), which has brought the range down. Our confidence in the company's growth is still strong in the light of the evidence received. Risks are maintained by the uncertainty of the growth rate, which also affects cash development. However, customer wins continue to lay the foundation for growth and improve access to financing. With this in mind, we find the risk/reward ratio of the share to still be attractive.