TEM Stock: Why Has Cathie Wood Been Buying Tempus AI?

Tempus AI [TEM] is a precision medicine company that is leveraging artificial intelligence (AI) and machine learning to transform healthcare.

The company uses data science to help healthcare professionals improve patient diagnoses. It also deploys genomics to tailor oncology treatments to patients’ genetic profiles. 

This stock spotlight will look at a surge in institutional interest in the stock and discuss the company’s Q4 earnings, which were released on Monday. It will also highlight potential for TEM stock’s future growth, as well as the impact of the recent acquisition of genetics testing firm Ambry. 

AI in precision medicine is a competitive market. It is forecast to be worth $3.92bn by 2030, growing at a CAGR of 30.7% from a value of $780m in 2024.

Institutional Investors Increase TEM Holdings

Back in November, Tempus announced it would be paying $600m to acquire Ambry, helping to broaden its testing portfolio and disease coverage. 

Tempus said at the time that Ambry was on track to generate $300m revenue in calendar 2024 and adjusted EBITDA of more than $40m. Meanwhile, Tempus reported revenue of $492.7m and adjusted EBITDA of negative $96m for the nine months to September 30. 

The acquisition’s potentially positive impact on Tempus’ revenue and adjusted EBITDA could explain why institutional investors poured into the stock in the final three months of 2024.

According to the latest 13F filings, JPMorgan [JPM] added 1,651,996 shares in Q3, boosting its holding by a staggering 86,947%. UBS [UBS] added 786,025 shares in the quarter, increasing its position by 6,524%. Meanwhile, ARK Investment Management more than doubled its holding, from 2,378,157 shares to 5,519,644 shares. 

TEM Stock Hits All-Time High 

The Tempus share price set an all-time high of $91.45 on February 14, up nearly 300% from its all-time low of $22.89 set on June 25. TEM stock is up 84.42% in the year to date through February 26, to $62.26. 

The stock plunged as much as 15% in after-hours trading on February 24 after Q4 results disappointed investors. 

Growth Outpaces Peers, Misses Expectations 

Revenue for Q4 rose 35.8% year-over-year to $200.7m, but fell slightly short of the analyst consensus of $202.8m. Fourth-quarter adjusted EBITDA improved from a loss of $35.1m in Q4 2023, and of $21.8m in Q3 2024, to a loss of $7.8m. 

Tempus expects revenue for fiscal 2025 to jump 79% year-over-year from a growth rate of 30.4% in 2024, boosted by the Ambry acquisition. The company also expects to report a positive adjusted EBITDA of $5m compared with a negative $104.7m last year. 

“We believe our investments in AI have positioned us well for the future, as technologies that seemed unimaginable a few short years ago increasingly allow us to make our diagnostics intelligent, helping patients live longer and healthier lives,” said Tempus CEO and Founder Eric Lefkofsky in the earnings release. 

Healthcare tech peers Illumina [ILMN] and Labcorp [LH] reported revenue growth of 1% and 9.8%, respectively, in the final three months of 2024. 

Here is how the fundamentals of Tempus, Illumina and Labcorp compare. 

Source: Stockanalysis.com

While Tempus is not yet profitable, the company has healthier revenue projections than its peers. However, TEM stock could be considered slightly overvalued given that its current P/S ratio is higher than the 7.14 industry average for biotech stocks. 

TEM Stock: The Investment Case

The Bull Case for Tempus

The good news for TEM stock is that Cathie Wood, who is known for investing in disruptive firms even if they are not yet profitable, has continued to double down on her Tempus bet. 

Data collated by Cathie’s ARK shows that Cathie Wood bought shares in several tranches between January 3 and 17 — and then again on February 25 — adding them to the ARK Genomic Revolution ETF [ARKG] and the ARK Innovation ETF [ARKK].

If the next 13F filings in May show that other institutional investors continued to add to their holdings in Q1, then this could be a vote of confidence for the stock. 

The Bear Case for Tempus 

Tempus is relying on the Ambry acquisition to help it turn profitable. And, while the synergies look promising, there is no guarantee it will pay off immediately.

In the near term, TEM stock could be volatile. William Blair analysts downgraded the stock earlier this month from ‘outperform’ to ‘market perform’. 

They argued in their note that the share price rise following Q4 earnings was a “momentum trade” fueled by Nancy Pelosi purchasing 50 call options last month, as well as the Trump administration’s Stargate plan, which will see $500bn invested in AI infrastructure. In reality, though, these are unlikely to have any bearing on Tempus’ financials, the analysts wrote.

Conclusion

Any healthcare company that leverages AI to improve diagnoses and patient care, especially when it comes to cancer, could potentially see significant growth. However, balancing innovation and profitability can be tricky.