We came across a bullish thesis on Tempus AI, Inc. (TEM) on Substack by Market Moves by GBC. In this article, we will summarize the bulls’ thesis on TEM. Tempus AI, Inc. (TEM)’s share was trading at $50.77 as of Jan 29th.
A doctor entering a patients results into a medical diagnostic computer.
Tempus, a company founded by Eric Lefkofsky in 2015, emerged from a personal journey when his wife was diagnosed with breast cancer. This experience highlighted a crucial gap in the healthcare system—despite the advanced tools available to medical professionals, there was a lack of connection between patient data and clinical outcomes. Inspired by this, Lefkofsky’s vision was to create a platform that would make medical tests “intelligent” by linking them to a vast database of patient outcomes, enhancing the ability to make informed healthcare decisions. Tempus has since evolved into a leader in the healthcare technology space, transforming the diagnostic and treatment process by integrating artificial intelligence (AI), massive data repositories, and advanced genomics.
The core mission of Tempus is to shift the focus of medical tests from static snapshots of a patient’s condition to dynamic, data-driven insights. The company’s genomics division goes beyond traditional testing by leveraging genetic information to provide actionable insights on treatments that have been effective for patients with similar genetic profiles. This combination of cutting-edge technology and vast data sets has enabled Tempus to become the largest cancer testing company in the U.S., partnering with more than half of the country’s oncologists and reaching millions of patients.
A key differentiator for Tempus is its massive database, which includes over 200 petabytes of de-identified healthcare data, including clinical records, genetic profiles, and imaging data from millions of patients. This “medical brain” is continuously growing and being updated with millions of new tests, and it is powered by AI to provide real-time insights that doctors can use to make better treatment decisions. Tempus has achieved remarkable results, including a 96% match rate for patients to appropriate treatments and clinical trials, a significant improvement over traditional methods.
While oncology remains the company’s focal point, Tempus has expanded its platform to other areas of medicine such as cardiology, neurology, and rare diseases. This expansion underscores the company’s commitment to refining its diagnostic tests and remaining at the forefront of medical innovation. Tempus has also developed strong partnerships with over 2,400 hospitals and 19 of the 20 largest pharmaceutical companies, solidifying its role in both advancing clinical treatments and supporting drug development.
Despite its success, Tempus faces challenges, particularly with the availability of targeted therapies. While its genomic tests can identify mutations in patients’ genetic codes, the number of therapies targeting these mutations remains limited, raising concerns about the immediate impact of some of its offerings. Additionally, Tempus is still operating at a loss. In its first earnings report, the company generated $166 million in revenue, but profitability remains elusive, with analysts projecting that it may not be achieved until 2025.
Tempus’s business model is centered around three main segments: genomics, data services, and AI applications. The genomics division offers next-generation sequencing (NGS) and molecular testing services, providing valuable insights into cancer and other diseases. AI-driven algorithms, such as Tempus NOW, COHORTS, and LINK, assist healthcare providers by matching patients with the best treatment options, clinical trials, and care pathways. In addition to its work in oncology, Tempus has expanded its AI applications to other areas, such as cardiology, radiology, and neurology, making the diagnostic process more accurate and enabling faster treatment planning.
One of the company’s most notable achievements is its AI-powered data analysis, which not only aids healthcare providers but also supports pharmaceutical and biotechnology companies in drug discovery and clinical trial design. Tempus’s collaborations with top pharmaceutical companies and its contracts, valued at over $900 million, highlight its integral role in accelerating the development of new treatments.
Looking ahead, Tempus envisions a future where every medical test is intelligent and connected to a growing database of patient outcomes. Despite the challenges of limited targeted therapies and the need for profitability, the company’s strong growth trajectory, vast data assets, and deep industry partnerships position it for long-term success. Tempus’s continued expansion into new medical areas and its increasing revenue base indicate substantial future potential. In FY 2024, Tempus reported $693 million in revenue, a 30% increase from the previous year. The company’s core genomics and data services businesses are performing well, and the pending acquisition of Ambry Genetics is expected to further fuel growth.
Tempus is projected to generate $963 million in revenue by 2025, with a target of $1.17 billion by 2026. As the company approaches profitability, it is well-positioned to continue innovating and leading the AI-driven precision medicine space. Tempus offers an attractive investment opportunity, especially if its stock price stabilizes, allowing investors to enter at more favorable levels.
Tempus AI, Inc. (TEM) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 7 hedge fund portfolios held TEM at the end of the third quarter which was 18 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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Disclosure: None. This article was originally published at Insider Monkey.