Tempus AI (NASDAQ: TEM), a healthcare technology company, saw its stock surge 45% in a week after the company announced the launch of its AI app – Olivia. TEM stock was listed on June 14, 2024, and it lost 16% of its value last year, falling from levels of $40 in mid-June to $34 by the end of the year. It saw a sharp jump this month to $51 now. While TEM stock has had a volatile ride lately, if you want upside with a smoother ride than an individual stock, consider the High-Quality portfolio, which has outperformed the S&P, and clocked >91% returns since inception.
Tempus AI specializes in advanced medical diagnostics and testing, using techniques like next-generation sequencing, polymerase chain reaction profiling, molecular genotyping, and various anatomic and molecular pathology tests. The company’s clientele includes healthcare providers, pharmaceutical companies, biotech companies, and researchers. In essence, Tempus uses sophisticated technology to analyze genetic and molecular information, helping advance medical research and treatment approaches. Separately, see how a new software driven AI model is causing waves in Why Is DeepSeek Sinking Nvidia Stock?
Coming to the latest development around Olivia, the investors are optimistic, evident from the stock surge last week. Olivia is a mobile app that acts as an AI-powered personal health assistant. It helps users by consolidating their health information in a single place, using artificial intelligence to analyze this data, and providing practical recommendations based on the analysis.
Olivia possesses the capability to integrate with Apple Watch and Google Fit, facilitating the tracking of a user’s daily health metrics, summarizing their clinical history, and transcribing medical appointments with physicians. In short, Olivia functions as a digital health hub, leveraging AI to interpret complex health data.
Tempus has seen its sales surge from $188 million in 2020 to $640 million for the last twelve months period. However, it’s still a loss-making company, with an operating loss of $693 million and net loss of $801 million now. Its preliminary results for 2024 point toward sales of $693 million, reflecting a 30% y-o-y growth. The street estimates this growth rate to improve in the coming years, with 2025 sales estimated to be around $1 billion.
Looking at TEM stock, it underperformed the broader market last year, with returns of -16%, vs. 23% gains for the S&P500 index. In comparison, the Trefis High Quality Portfolio, with a collection of 30 stocks, is considerably less volatile. And it has comfortably outperformed the S&P 500 over the last four-year period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.
Given the current uncertain macroeconomic environment around rate cuts and changes in the White House, could TEM face a similar situation as it did in 2024 and underperform the S&P over the next 12 months — or will it see a strong jump? Despite its recent gains, there seems to be more room for growth for TEM stock. The $57 average of analysts price estimate implies another 11% upside from here. At its current levels of $51, TEM stock is trading at 11x trailing revenues. Now, a higher P/S ratio for high-growth companies seems justified. Tempus has seen its sales grow at an average annual rate of 39% in the last four years, and this kind of growth is expected to continue in the near term. Olivia will only help the company expand its reach, while genomics remains the largest contributor to the top-line.
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