We came across a bullish thesis on Tempus AI, Inc (TEM) on Two Natural Cap’s Substack by Two Natural Capital. In this article, we will summarize the bulls’ thesis on TEM. Tempus AI, Inc.’s share was trading at $45.98 as of Oct 10th.
A laboratory technician using high tech equipment to sequence cancer genomics.
Tempus AI is a precision medicine company that leverages artificial intelligence and vast data resources to improve healthcare outcomes, particularly in oncology and cardiology. The company, which went public in June 2024, has positioned itself as a leader in harnessing AI and large language models to advance precision medicine.
Tempus operates primarily through two key revenue streams: Genomics and Data Services. Its Genomics segment focuses on cancer diagnostics, offering a range of tests that help doctors tailor treatments to individual patients. This segment generated $363 million in revenue in 2023, and gross margins improved from 24% to 48%. The Data Services segment, which licenses Tempus’ extensive clinical and molecular data to 19 of the 20 largest pharmaceutical companies, also includes its Trials product, used by pharma companies to expedite patient enrollment in clinical trials. This service provides significant value, particularly in reducing costs and delays in drug development.
Tempus is an attractive investment due to its strong revenue growth and potential upside from AI advancements. In 2023, Tempus generated $531 million in revenue, and 2024 projections indicate 32% growth to $700 million. Although AI currently contributes just 1% to its total revenue, Tempus’ vast oncology database and ongoing investments in AI applications could drive future growth. For example, the company’s Tumor Origin Test and FDA-cleared ECG-AF algorithm demonstrate its AI’s potential in diagnostics, while Tempus One, an AI assistant for doctors, reflects its early steps into generative AI.
Valuation-wise, Tempus trades at around 10x its 2025 estimated sales, a figure considered reasonable compared to data/AI peers. Its diagnostics business offers significant spillover benefits to the AI segment, as historical genomics data can be repeatedly monetized through both its Data Services and AI product pipeline. This, combined with Tempus’ steady pharmaceutical sales base, provides a compelling long-term growth narrative. However, AI revenue will take time to materialize, with reimbursement issues likely delaying the full impact.
Tempus AI, Inc is also not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 18 hedge fund portfolios held TEM at the end of the second quarter which was 0 in the previous quarter. While we acknowledge the risk and potential of TEM as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than TEM but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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TEMclosure: None. This article was originally published at Insider Monkey.