Is this Google-backed AI growth stock the next Nvidia?

Our writer takes a look at one artificial intelligence firm that made its stock market debut in June. Could this be the next big AI growth stock?

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A hot new growth stock went public on 14 June. That was Tempus AI (NASDAQ: TEM), a healthcare firm using artificial intelligence (AI) to help physicians personalise patient care.

Founded in 2015, its revenue is rising sharply and it’s backed by Google. Should I snap up this stock in case it becomes the next Nvidia?

Personalised cancer diagnosis

This is how Tempus AI describes its mission: “Our goal is to embed AI, including generative AI, throughout every aspect of diagnostics to enable physicians and researchers to make personalised, data-driven decisions that improve patient care.”

The firm’s technology analyses medical data to make sure patients are on the right therapy at the right time. Cancer is its predominant focus.

The company’s CEO is Eric Lefkofsky, who co-founded Groupon back in the day. Following his wife’s cancer diagnosis, he was perplexed at how little personal data informed her treatment. So he founded Tempus, meaning there’s a real purpose underpinning the company, which I like.

It raised $410m going public and other blue-chip backers include Softbank and Scottish Mortgage Investment Trust.

How fast is it growing?

The company generates revenue through genomics diagnostics tests and by charging pharmaceutical companies that want access to its vast library of clinical oncology insights. Revenue from its direct AI applications is so far minimal.

Around 95% of the world’s top 20 pharma firms have used its products. And it now has partnerships with over 200 healthcare companies, including AstraZeneca and GSK.

I’m fascinated by the potential of its Tempus One product. This is an AI-powered clinical assistant trained on vast amounts of genomic data that provides insights to physicians directly at their fingertips. It allows for real-time decision-making at the point of care.

The company is growing rapidly, as we can see below.

Annual revenue
2023$532m
2022$321m
2021$258m
2020$188m

Losses

However, the firm is also still loss-making, which adds risk to the investment case. Last year, it reported a net loss of $214m, down from $289m the year before.

While it expects to generate positive EBITDA in 2025, its IPO prospectus also mentions that it might need to tap investors for more cash in future. So I’d expect the stock price to be highly volatile.

In fact, we’ve already got a taste of this. After flying to $40 from its IPO price of $37, the share price fell to $23 before rebounding to $32.

This gives the company a market cap of $4.8bn and puts the stock on a price-to-sales (P/S) multiple of around eight. That looks quite pricey, despite the impressive rate of growth.

Tempted by Tempus?

I’m careful not to get too excited about any stock with an ‘AI’ after its name. There’s a growing collection of these now – C3.ai, SoundHound AI, and now Tempus AI. It’s all the rage.

Overall though, I think there’s a lot to like here. The firm puts its combined addressable markets above $200bn. And while it’s best to take such estimates with a grain of salt, growth is really strong right now.

However, it’s far too early to tell if this is the next big AI winner. Nvidia’s chips form the building blocks of AI infrastructure, whereas Tempus’s business model is promising yet still unproven.

Therefore, as things stand, I reckon there are safer growth stocks to buy today.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Ben McPoland has positions in AstraZeneca Plc and Scottish Mortgage Investment Trust Plc. The Motley Fool UK has recommended AstraZeneca Plc, GSK, and Nvidia. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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