Tempus AI Inc.’s (TEM) stock experienced a significant decline on Wednesday following Spruce Point’s announcement of a short position in the Chicago-based health technology company. The investment firm’s short report highlighted several concerns, including account irregularities and deteriorating relationships with key clients such as AstraZeneca.
Concerns Raised by Spruce Point
Spruce Point questioned the company’s credibility by pointing out that its top executives, including board members, have a history of creating ‘disruptive technology companies’ that make bold claims but ultimately fail to deliver. These executives often cash out early, leaving shareholders with subpar returns.
Additionally, Spruce Point accused Tempus AI management of misleading investors about their use of artificial intelligence. Despite rebranding from ‘Tempus Labs’ to ‘Tempus AI’ last year to capitalize on the AI trend, artificial intelligence contributed only 2.0% to the company’s overall revenue in 2024. This suggests that Tempus AI’s ability to leverage AI is potentially exaggerated.
Valuation Concerns
Investors should exercise caution with Tempus AI stock, even if some of the recent allegations are unfounded. The primary concern lies in the company’s valuation. Since the rally that began on April 8, TEM shares have surged beyond what current fundamentals justify. The company remains unprofitable and has not generated positive net cash flow, making its current pricing appear stretched relative to its financial performance.
In the previous year, Tempus AI reported a loss of $1.58 per share on $693.4 million in revenue, slightly missing analysts’ expectations of $696.3 million. While the company’s Q1 earnings showed revenue of over $255 million and a loss of 24 cents per share, beating consensus estimates, the overall financial health remains a concern.
Wall Street’s Outlook
Despite Spruce Point’s short report, Wall Street remains bullish on Tempus AI stock for the remainder of the year. The consensus rating is ‘overweight,’ with a mean target price of nearly $65, indicating a potential upside of more than 20%. Influential investor Cathie Wood’s investment management company has also shown confidence in the stock by purchasing 400,000 shares across two of its flagship ETFs in March.
