In the year 2025, shares of Tempus AI have experienced a staggering 108% surge; is this the right time to invest?
In the bustling world of artificial intelligence (AI), it remains to be seen if the market excitement that erected AI stocks higher in 2024 will continue into 2025. Nevertheless, one lesser-known contender in the AI sphere, Tempus AI (TEM 1.12%), has been setting new records since the New Year's Eve ball dropped. With a spectacular 108% surge since the new year, Tempus AI's stock has been stealing the show in the AI community.
Investors have been allured by Tempus AI's utilization of AI to empower physicians in diagnosing patients, thereby improving patient care. The company excels in this with its proprietary technology, which boasts one of the largest libraries of clinical and molecular oncology data globally.
As you ponder whether to jump on the Tempus AI bandwagon, or if the stock has run ahead of itself, a few factors merit consideration.
How did Tempus AI's stock price escalate?
Tempus AI completed its initial public offering (IPO) on June 14, 2024, closing at $40.25. While the stock frequently surpassed this mark in the second half of 2024, it ultimately closed the year on a sour note at $33.76. The catalyst for the stock's meteoric rise in 2025 came in mid-January when investors recognized the major influence of Cathie Wood's Ark Invest, who expressed a bullish stance on the stock.
Despite Tempus AI's announcement of preliminary fourth-quarter 2024 financial results that fell short of analyst estimates, both the Ark Innovation ETF and the Ark Genomic Revolution ETF continued to bolster their positions in Tempus AI. Consequently, Tempus AI assumed significant spots in both ETFs, holding the seventh and second-largest positions, respectively.
The market's enthusiasm for Tempus AI was further fueled by its collaboration with the Institute for Follicular Lymphoma Innovation, which aimed to create a comprehensive follicular lymphoma data collection. Following this announcement, shares of Tempus AI surged 13%.
What Investors should look out for in the near future
While the Ark Innovation ETF and Ark Genomic Revolution ETF's buying activity served as a significant boon for Tempus AI stock, the company must demonstrate to the market that its AI solutions maintain increasing interest from clients. To facilitate this, investors should focus on these critical indicators.
One green flag for investors would be if the company records growth in its genomics sector, which offers next-generation sequencing (NGS). In 2022 and 2023, Tempus AI reported year-over-year growth for its oncology NGS tests delivered of 53% and 48%, respectively. A decrease in 2024 and subsequent quarters would undeniably raise concerns for a crucial component of the business.
Another essential metric for investors is the company's net revenue retention rate. Tempus AI's ability to deepen its relationships with current clients in 2023 resulted in a net revenue retention rate of 125%. If the company reports a decline in this figure below 100% for 2024, that would serve as a cautionary warning sign that customers are finding Tempus AI's offerings less than satisfying.
Of course, Tempus AI's ambition to attain profitability should stay on investors' radars. While prospective investors will want Tempus AI to meet its 2024 forecast and report 2024 adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of negative $65 million, they will also expect management's commitment to its projection of generating positive EBITDA on an adjusted basis in 2025.
Those with the stomach for higher-risk investments may find the current climate favorable for establishing a position in Tempus AI. While its recent surge may lead some to contemplate that it's already too late, closer examination reveals that the stock's valuation remains reasonable.
As a growth stock, Tempus AI is inherently volatile. However, those with a higher tolerance for risk might be handsomely rewarded in the future.
- In the investing world, the surge in Tempus AI's stock price in 2025 can be partly attributed to Cathie Wood's Ark Invest's bullish stance on the company.
- As Tempus AI moves towards 2025, investors should look out for the company's net revenue retention rate, as a decline below 100% could indicate dissatisfaction with its offerings.
- In the realm of finance, the key for Tempus AI to maintain its market excitement in 2025 could lie in its ability to demonstrate increasing interest in its AI solutions from clients, particularly in its genomics sector.
- With the aim to reach profitability by 2025, Tempus AI's adjusted EBITDA should be a critical metric for potential investors, as any deviation from the forecast could significantly impact the stock's trajectory.
Furthermore, in the context of AI and finance, it's worth noting that as we approach 2025, the intersection of AI and healthcare, as exemplified by Tempus AI, could be a significant investment area to explore, considering the potential for transformative impact on patient care and diagnosis. Additionally, the company's partnerships and collaborations could serve as clear indicators of its potential for growth and long-term success in the AI sector.