Tempus AI Is a Buy, If You Can Handle the Volatility
Tempus AI (NASDAQ: TEM) is an emerging AI player in the healthcare field with a robust outlook for long-term growth and profitability. The company uses AI to manage patient testing and help physicians generate timely diagnoses and treatment regimens. While slow to gain traction in 2024, 2025 is expected to be a pivotal year as the adoption of AI services broadens and deepens within critical sectors.
Healthcare is one of the critical sectors expected to benefit from AI efficiency at virtually all levels, including internal operations, CEM, patient satisfaction, and outcomes. It is forecasted to grow at a nearly 40% CAGR for the next five years.
Among Tempus AI’s claims to fame is the world’s largest clinical and molecular data database, which it can capitalize on to generate personalized patient care. Draws for healthcare providers include the easy-to-use operating system that makes the data and insights accessible. The platform is used by healthcare providers across verticals, including cardiologists, oncologists, research centers, and pharmaceutical companies.
Insiders Sell Tempus AI: Institutions Buy It
Insiders sold Tempus AI shares heavily in the first two months of 2025, which is not surprising given the nearly 150% rise in share price and lock-ups' expiration. Even so, insiders still own a significant number of shares, and their selling activity is more than offset by institutional buying.
Institutional buying of Tempus AI has been robust since the IPO, netting nearly $2.3 billion in shares by the end of February 2025. Their activity is worth roughly 25% of the market cap, with shares near $57.50. The company's total institutional ownership is up to 25% and rising.
The Q4 results and guidance sparked a deep decline in the share price that institutions will likely take advantage of. The takeaways are that revenue and earnings fell short of the consensus estimates reported by MarketBeat, but growth is robust and accelerating, driven by client wins and penetration.
Penetration is noteworthy, with a high 140% retention, indicating clients are increasing their services at a high-double-digit pace once onboarded. The outlook for 2025 is for revenue growth to accelerate to a hyper 79% pace and for profits to come soon after. The consensus for profitability is 2026 and may be reached sooner.
Analysts Lift Tempus AI Stock Price: Short-Sellers Capping Upside Potential
The analysts’ response to Tempus AI’s 2025 guidance is mixed, including reiterated ratings and price targets, a downgrade to Hold, and two price target increases. However, the analyst that issued the downgrade raised its price target to $55, and the other responses equally supported the market.
The two reiterated ratings are pegged at Buy, with above-consensus price targets. The remaining price target increase aligns with the high-end range of targets, implying a move to $70 or higher.
Short interest is a factor impacting the stock price and market volatility. While institutions buy on the dips, short-sellers sell at the peaks and weigh heavily on the market in late February. Short interest approached 25% at January's end and likely rose further since then.
In their view, Tempus AI is a fine company, but its market potential is capped because roughly two-thirds of its addressable market already uses the platform.
Tempus AI Stock Price Re-Aligns With Realistic Valuation
Tempus AI’s stock price plunged following the 2025 guidance update, opening a significant opportunity for investors. Trading at $58.50, it is down more than 35% from recent highs and back in alignment with a more realistic valuation. At this level, TEM stock is only 30x its 2028 EPS consensus estimate, which prices in robust growth but leaves meat on the bone for investors, more assuming the 2028 outlook is too low.
