Only time will tell if the market enthusiasm that drove artificial intelligence (AI) stocks higher in 2024 will extend through 2025. But one ticker that may be less recognizable among the AI crowd is certainly off to a roaring start since the ball fell on New Year's Eve.
Skyrocketing 108% since the start of 2025, Tempus AI (TEM +1.31%), a company applying AI solutions to healthcare, has seen its stock perform exceptionally well this year. Investors have found the company's use of AI to enhance physicians' abilities to diagnose patients (thereby improving patient care) enticing. The company does this with the help of its proprietary technology for developing what it characterizes as "one of the largest libraries of clinical and molecular oncology data in the world."
Many potential investors, however, are likely left wondering if the stock has gotten ahead of itself and is better left alone right now, or if today is still a good time to click the buy button.
NASDAQ: TEM
Key Data Points
How did Tempus AI stock get here?
Completing its initial public offering on June 14, Tempus AI stock closed at $40.25, and while it rose above this mark from time to time in the second half of 2024, the stock ended the year on a sour note, closing at $33.76.
The catalyst for the stock's rise in 2025 came in mid-January, when investors recognized that Cathie Wood's Ark Invest had taken a decisively bullish view on the stock. Undeterred by the company's Jan. 13 announcement of preliminary fourth-quarter 2024 financial results that projected revenue short of analysts' estimates, both the Ark Innovation ETF and the Ark Genomic Revolution ETF added to their positions in Tempus AI.
Several days later, both exchange-traded funds built up their positions even further. Now, Tempus AI features prominently in the Ark Innovation ETF and Ark Genomic Revolution ETF, where it holds the seventh- and second-largest positions, respectively.
More recently, investors celebrated the company's announcement that it's working with the Institute for Follicular Lymphoma Innovation to create a library of follicular lymphoma data, which researchers could use to gain insights into the disease. Following the announcement of this collaboration, shares of Tempus AI closed 13% higher.
What should investors look for in the days ahead?
While Tempus AI stock received a lift from the Ark Innovation ETF and Ark Genomic Revolution ETF buying activity, the company needs to show the market that its AI solutions are receiving continued -- and growing -- interest from customers. To assess this, investors should look for a couple of signals.
One green flag, for example, is if the company is reporting growth in its genomics business, which provides next-generation sequencing (NGS). In 2022 and 2023, Tempus AI reported year-over-year growth in its oncology NGS tests delivered of 53% and 48%, respectively. Should the company report a further decline in 2024 and the subsequent quarters, it would certainly be an inauspicious sign for a core part of its business.
Another important metric for investors to monitor is the company's net revenue retention. Tempus AI has achieved success recently in furthering its relationships with current customers. In this regard, Tempus AI had a net revenue retention rate of 125% in 2023. If the company reports net revenue retention in 2024 that dips below 100%, it would represent a warning sign that customers are finding Tempus AI's offerings inadequate.
Of course, the company's attempt to achieve profitability should also be on investors' radars. While prospective investors will want to see Tempus AI achieve its 2024 guidance and report 2024 adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of negative $65 million, they will also want to see that management remains committed to its belief that the company will generate positive EBITDA on an adjusted basis in 2025.
For those with a stomach for higher-risk investments, now's a good time to consider a position
After seeing Tempus AI stock soar over the past two months, the knee-jerk reaction may be to conclude that it's too late to initiate a position. Dig a little deeper, and investors will find that the stock's recent rise hasn't resulted in an exorbitant valuation. Since the growth company is still unprofitable, the price-to-earnings ratio isn't much use. Assessing the stock's price tag in terms of sales, however, shows that shares are reasonably valued, trading at a price-to-sales ratio of 22.8.
It's critical to acknowledge that a growth stock such as Tempus AI is sure to endure some volatility in the days ahead, but those with a higher tolerance for risk may find that they're substantially rewarded in the future.
