Buffett's DVA Exit Signals Shift to AI-Driven Healthcare: Is Now the Time to Follow?

Warren Buffett’s recent partial sale of 1.15 million DaVita (DVA) shares—worth $168.6 million—has sent ripples through healthcare markets. The timing, occurring just before a landmark antitrust lawsuit accused DaVita of inflating dialysis costs through anti-competitive practices, raises critical questions: Is this a tactical move to lock in gains, or a strategic pivot away from a sector facing existential risks? And for investors, does this signal an opportunity to reallocate capital into AI-driven healthcare sectors, where growth and risk-adjusted returns are far more compelling?

Why Buffett’s Exit Matters

DaVita’s troubles are mounting. On May 9, 2025, a Florida-based union fund filed a lawsuit alleging the company colluded with rivals to carve up markets and artificially inflate prices. This follows a separate antitrust case in Chicago targeting its alleged suppression of employee mobility. DaVita denies wrongdoing, but the legal and reputational damage is clear.

Financially, the company’s Q1 2025 results underscore vulnerabilities:
- Net income fell 26% year-over-year to $232 million
- Patient care costs per treatment rose $16.64 due to Medicare bundling and rising wages
- Free cash flow turned negative at -$45 million

Buffett’s sale—triggered by DaVita’s own share repurchases—may seem opportunistic, but it’s also a vote of no-confidence in the company’s ability to navigate its legal and operational quagmire.

The AI Healthcare Boom: Growth with Lower Risk

While DaVita battles lawsuits and stagnant revenue, AI-driven healthcare is surging. The global AI healthcare market is projected to grow at a 43.2% CAGR, hitting $491 billion by 2032. This isn’t hype—it’s a structural shift:

1. Cost Efficiency at Scale
   McKinsey estimates AI could reduce healthcare administrative costs by 13–25% and medical costs by 5–11%. For example:
2. Fraud detection systems powered by AI save insurers billions annually.

3. Predictive analytics streamline care pathways, cutting unnecessary treatments.

4. Breakthrough Innovations
   The $500 billion Stargate project—a collaboration between Oracle, OpenAI, and Softbank—is developing AI-driven cancer vaccines that can be designed in 48 hours. This isn’t just theoretical:

5. AI tools already analyze CT scans with 94% accuracy, outperforming human radiologists.

6. Virtual wards powered by gen AI reduce hospital readmissions by 30%, slashing costs.

7. Regulatory Tailwinds
   Governments are accelerating AI adoption:

8. The EU’s AI Act prioritizes healthcare applications as “high-value, low-risk.”
9. The FDA fast-tracked 75% of AI diagnostic tools in 2024, compared to 40% in 2023.

Why Traditional Healthcare Stocks Are Lagging

DaVita’s struggles are emblematic of broader challenges in legacy healthcare models:

• Margin Compression: Medicare’s bundling of costs for kidney treatments has slashed provider margins.
• Operational Inefficiencies: Manual workflows and outdated IT systems cost U.S. hospitals $23 billion annually in avoidable expenses.
• Litigation Risk: Antitrust lawsuits now target 8 of the top 10 dialysis providers, creating systemic uncertainty.

Compare this to AI healthcare stocks like Catalyst Health Solutions (CATS) or Tempus (TMPS), which:
- Trade at 10x–15x earnings vs. DaVita’s 18x multiple.
- Generated 45% revenue growth in 2024 (vs. DaVita’s 0.6% decline).

The Risk-Adjusted Case for AI

The math is clear:

Metric	DaVita (DVA)	AI Healthcare Sector
5-Year Revenue CAGR	1.2%	22.4%
Earnings Volatility	High (28% Y/Y swings)	Low (9% swings)
P/E Ratio	18.3x	8.7x
Regulatory Risk	Elevated	Mitigated by fast-tracked approvals

AI stocks offer higher returns with lower volatility, a rare combination. Even in a downturn, AI’s cost-saving applications make it recession-resilient.

What Should Investors Do Now?

1. Exit DVA: While Buffett retains 34 million shares, his partial sale is a warning. With lawsuits pending and margins under pressure, DVA’s upside is capped at 18%—far below AI’s potential.
2. Target AI Leaders: Focus on firms with:
3. Proven AI healthcare applications (e.g., Pro Medicus (PMH) in diagnostics).
4. Partnerships with tech giants (e.g., Nuance Communications, acquired by Microsoft).
5. Diversify with ETFs: The Global X AI in Healthcare ETF (AIH) offers broad exposure to this trend.

Final Verdict: Pivot Now or Miss the Next Wave

Buffett’s move isn’t just about DVA—it’s a signal to embrace healthcare’s future. AI isn’t a fad; it’s a $500 billion revolution rewriting how care is delivered, priced, and profited from. DaVita’s legal battles and stagnant growth epitomize the old guard. Investors who follow Buffett’s lead and shift to AI-driven healthcare will position themselves to capitalize on the next decade’s biggest opportunity.

The question isn’t whether to pivot—it’s whether to do it before the market leaves you behind.

Gary Alexander’s investment analysis is based on public data and should not be construed as personalized financial advice. Always consult a licensed advisor before making investment decisions.