Tempus AI: Volatility Equates to Opportunity in AI Leader
Tempus AI’s (NASDAQ: TEM) stock price pulled back in early November following its Q3 release, aligning with broader market action and opening a buying opportunity for investors. The primary concern is the valuation, which is admittedly high relative to its current-year outlook. However, the forecasts are pricing in substantial growth, and the Q3 release suggests the estimates are conservative.
As it stands, the stock is trading at approximately 13x its 2025 earnings, suggesting there is value for investors with the fortitude to stomach the volatility and hold for the duration. In this scenario, Tempus AI stock could set fresh all-time highs and then advance by triple digits over the coming years.
Tempus AI Achieves Profitability Sooner Than Expected
Tempus AI had a solid quarter, with revenue growing by nearly 85% on both organic growth and acquisitions. The core genomics unit grew by 117% year-over-year (YOY), driven by a 33% increase in testing volume. Oncology, the legacy business, grew by 27% and was outperformed by Hereditary testing, which grew by 37%.
The company’s Data segment grew by 26%, driven by a 37% increase in Insights, the data licensing business, and all are expected to remain strong in the upcoming quarters. Tempus AI is emerging as the leading AI database and service provider for oncology and adjacent fields—an industry worth approximately $300 billion in 2025 and ripe for AI-powered disruption.
The margin news is good. The company continues to post net losses due to one-time events, intangibles, and non-cash impairments; however, the underlying business is performing well. The surge in revenue and resulting revenue leverage drove a significant increase in cash flow, which was further compounded by reduced spending, ultimately leaving the adjusted results in a stronger position.
The takeaway is that Tempus AI achieved its first-ever quarter of positive EBITDA, sooner than expected, and is on track to sustain profitability.
Guidance is among the reasons why a stock price rebound is likely. The company’s Q3 strengths, along with the Paige acquisition, enabled it to raise its year-end targets. Executives forecast an 80% YOY revenue gain and positive EBITDA for the year, with revenue of $1.265 billion slightly better than expected.
The likely outcome is that guidance is overly cautious and outperformance will be reported.
Analysts Point to a 20% Upside for Tempus AI
The analysts’ response to Tempus AI’s report is at odds with the market. A single analyst lowered its target, but numerous price target reiterations and increases offset this. Furthermore, all, including the reduction, align with a $95 to $105 price point, which is well above the consensus of $80.
The takeaway is that Tempus AI’s stock price decline is an overreaction that sets it up for a rebound.
The risk lies with the short-sellers and institutions. The short interest was significantly high in late October, above 20%, and institutions were selling in the first weeks of Q4, potentially capping gains in this market in 2025.
The question is whether institutions will revert to buying now that the guidance is in and the stock’s price is discounted, or continue to sell. If they continue to sell, Tempus AI will struggle to set new highs without a more potent catalyst.
The price action following the release is bearish, confirming a top near $91. However, the pullback also reveals support at critical levels that align with prior highs and a breakout that formed earlier this year. Assuming support holds at this level, near $80, Tempus will likely consolidate and trade sideways until the subsequent earnings release or another catalyst emerges.
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