American Well's Strategic Resilience in a Shifting Digital Health Landscape

The digital health sector is undergoing a seismic shift, driven by macroeconomic pressures, regulatory changes, and the relentless march of artificial intelligence. For American Well (AMWL), a company deeply embedded in the U.S. military healthcare ecosystem and the broader telehealth market, these forces have created both headwinds and opportunities. The recent revisions to its contract with the Defense Health Agency (DHA) have forced a recalibration of its business model, but the company's strategic pivot toward AI-driven efficiency and high-margin subscription software positions it as a compelling long-term investment.

Navigating DHA Contract Revisions: A Test of Resilience

In 2025, Amwell extended its partnership with the DHA to modernize the Military Health System (MHS) through its virtual care platform. However, the revised contract excluded behavioral health and automated care programs—a $180 million initiative—due to budget constraints tied to the Trump administration's spending cuts. This exclusion directly impacted Amwell's revenue guidance, which was revised downward to $245–$250 million for 2025, from $250–$260 million. Adjusted EBITDA losses also narrowed slightly, from a projected $55–$45 million to $50–$45 million, reflecting cost-cutting measures such as workforce reductions and operational streamlining.

While these changes are a near-term drag, they underscore Amwell's ability to adapt. The company's CEO, Ido Schoenberg, has emphasized that the exclusion of these programs is a function of broader fiscal constraints, not a critique of their value. Behavioral health and automated care have demonstrated measurable cost savings and improved patient outcomes, and their reintroduction in future contracts remains a distinct possibility. For investors, this highlights Amwell's resilience in navigating government contract volatility—a critical trait in a sector where public-sector clients often dictate growth trajectories.

AI-Driven Efficiency: A Catalyst for Long-Term Value

Amwell's response to the DHA revisions has been twofold: accelerating cost discipline and doubling down on AI-driven operational efficiency. In Q2 2025, the company reported a 12.2% reduction in R&D expenses and a narrowed adjusted EBITDA loss of $4.7 million, compared to $35 million in Q2 2024. These improvements were fueled by AI-powered tools that streamline clinical workflows, automate administrative tasks, and optimize resource allocation.

The company's AI initiatives are not just cost-saving measures—they are strategic enablers of growth. For instance, Amwell's platform has been integrated into the MHS's Digital First Program, which has already tripled virtual visits compared to the legacy system. AI is being used to enhance hybrid care models, reduce provider burnout, and improve patient engagement. Schoenberg has described the platform as a “force multiplier” for healthcare systems, a characterization that aligns with the broader industry's shift toward AI-augmented care delivery.

Subscription Model: A Path to Sustainable Margins

Amwell's pivot to a high-margin subscription software model is another pillar of its long-term value creation. In Q2 2025, subscription revenue grew 47% year-over-year to $40.4 million, accounting for 57% of total revenue. This shift is critical in a sector where recurring revenue provides stability amid the volatility of government contracts. The company's SaaS platform is now deployed across diverse clients, including the Military Entrance Processing Command, the U.S. Coast Guard, and commercial partners like Florida Blue.

The subscription model also positions Amwell to capitalize on the AI-driven healthcare transformation. As health systems prioritize cost-effective, scalable solutions, Amwell's platform offers a unified infrastructure for virtual care, AI-powered diagnostics, and data analytics. This aligns with industry trends: the global AI healthcare market is projected to grow from $15.1 billion in 2022 to $187.9 billion by 2030, a 37% CAGR. Amwell's early integration of AI into its workflows gives it a first-mover advantage in this high-growth segment.

Competitive Positioning and Risk Mitigation

Amwell's competitive edge lies in its ability to solve fragmentation in digital health. Unlike point solutions that address isolated aspects of care delivery, its platform integrates virtual visits, AI tools, and EHR interoperability into a cohesive ecosystem. This is particularly valuable for large clients like the DHA, which require seamless, scalable solutions. The company's partnership with Leidos to replace the MHS Video Connect system further cements its role as a key player in federal healthcare modernization.

However, risks remain. The DHA contract's exclusion of behavioral health programs highlights the vulnerability of government contracts to budgetary shifts. Additionally, the telehealth sector is highly competitive, with rivals like Teladoc Health and Doxy.me vying for market share. Yet, Amwell's focus on AI-driven efficiency and its strong balance sheet ($219 million in cash, zero debt) provide a buffer against these challenges.

Investment Thesis: A Buy for the Long-Term

For investors, Amwell represents a compelling case of strategic resilience. The company is navigating near-term headwinds with disciplined cost management and AI-driven innovation, while its subscription model and federal contracts provide a foundation for sustainable growth. Schoenberg's roadmap to positive cash flow by 2026, coupled with the AI healthcare market's explosive growth potential, suggests that Amwell is well-positioned to outperform in the long term.

The key risks—government budget volatility and competitive pressures—are mitigated by Amwell's diversified client base, recurring revenue model, and technological differentiation. While the stock may remain volatile in the short term, its fundamentals point to a strong value proposition for patient investors.

In a digital health landscape defined by rapid change, Amwell's ability to adapt and innovate is its greatest asset. For those seeking exposure to the AI-driven healthcare revolution, Amwell offers a strategic and resilient investment opportunity.