Tempus AI Plunges 5.22%—Is This a Buying Opportunity or a Sector-Wide Selloff?

Summary
• Tempus AI (TEM) slumps to $69.26, down 5.22% from its 2025-08-20 open of $70.90
• Intraday range spans $67.02 to $73.80, signaling sharp reversal from morning highs
• Sector peers like UnitedHealth (UNH) also retreat, down 2.12% amid regulatory uncertainty
• Options frenzy: 2025-08-29 put options at strikes $63–$69 see 135%–167% price surges

Tempus AI’s abrupt 5.22% decline has ignited a firestorm in the healthcare AI space, with traders scrambling to decode the catalyst. The stock’s collapse follows a morning rally to $73.80, only to reverse sharply into the red. With UnitedHealth also retreating and sector-wide regulatory jitters escalating, the question looms: Is this a short-term correction or a deeper shift in market sentiment?

Regulatory Uncertainty and Medicaid Overhaul Spur Flight
The selloff in Tempus AI aligns with a broader sector-wide jolt triggered by the new tax law’s potential to destabilize Medicaid coverage. Health systems are scrambling to deploy community health workers to mitigate patient losses, while lawsuits over Medicare Advantage and the No Surprises Act add regulatory fog. UnitedHealth’s 2.12% drop underscores the sector’s vulnerability. For Tempus AI, the AI-driven healthcare model faces direct headwinds as policymakers prioritize cost-cutting measures that could curtail tech investments in provider networks.

Healthcare Providers Retreat Amid Policy Turbulence
The Health Care Providers & Services sector is under pressure as regulatory lawsuits and Medicaid restructuring dominate headlines. UnitedHealth’s 2.12% decline mirrors broader sector weakness, with rural ER staffing crises and AI implementation delays compounding concerns. Tempus AI’s 8% drop outpaces even sector leaders, reflecting its niche exposure to Medicaid-dependent AI solutions. The sector’s 52-week low of $31.36 for TEM suggests a fragile technical backdrop, with policy risks overshadowing long-term growth narratives.

Bearish Plays and ETFs to Hedge the Volatility
• 200-day average: $55.50 (below current price)
• RSI: 71.0 (overbought)
• MACD: 3.36 (bullish divergence)
• Bollinger Bands: Price at $67.20 (near lower band at $49.65)
• Key support: $60.54 (30D), $58.33 (200D)
• Leveraged ETF: ARK Genomic Revolution ETF (ARKG) (-2.02% change) offers directional exposure to tech-heavy healthcare names

Top Options Plays:
1. TEM20250829P66 (Put, $66 strike, 2025-08-29):
• IV: 79.47% (high volatility)
• Leverage: 30.61% (moderate)
• Delta: -0.3448 (moderate sensitivity)
• Theta: -0.0551 (slow decay)
• Gamma: 0.0407 (responsive to price swings)
• Turnover: $76,048 (highly liquid)
• Payoff at 5% downside ($63.84): $2.16 per contract (108% gain). This put thrives in a 5% drop, with robust liquidity and gamma to capitalize on volatility spikes.
2. TEM20250829P65 (Put, $65 strike, 2025-08-29):
• IV: 78.76% (high volatility)
• Leverage: 37.23% (moderate)
• Delta: -0.3019 (moderate sensitivity)
• Theta: -0.0592 (slow decay)
• Gamma: 0.0388 (responsive to price swings)
• Turnover: $63,030 (highly liquid)
• Payoff at 5% downside ($63.84): $1.16 per contract (65% gain). This put balances leverage and liquidity for short-term bearish bets.

Aggressive bears should prioritize TEM20250829P66 into a breakdown below $63.50, while conservative traders may use ARKG to hedge long-term exposure.

Backtest Tempus AI Stock Performance
The TEM strategy has historically shown positive performance after experiencing a -5% intraday plunge. The backtest data reveals that the 3-day win rate is 49.63%, the 10-day win rate is 55.15%, and the 30-day win rate is 65.81%, indicating that the strategy tends to recover from such events with a higher probability of positive returns. Additionally, the maximum return during the backtest period was 27.15%, which occurred on day 59, suggesting that while there is some volatility, the strategy has the potential for substantial recovery and even exceed initial levels.

Act Now: Key Levels and Sector Catalysts to Watch
The 5.22% plunge in Tempus AI signals a critical inflection point, with regulatory risks and Medicaid overhauls amplifying near-term uncertainty. While technicals suggest support at $60.54 and $58.33, the sector’s exposure to policy shifts demands vigilance. UnitedHealth’s 2.12% retreat highlights the fragility of healthcare stocks in this environment. Traders should monitor the 2025-08-29 options expiration for liquidity-driven moves and watch for a breakdown below $63.50 to confirm bearish momentum. For now, the path of least resistance appears downward—position accordingly. Sector leader Veeva Systems (VEEV) is down 0.77%, signaling broader sector weakness. Watch for $63.50 breakdown or regulatory reaction.