Tempus AI (TEM) Stock Drops 12% After Q4 Earnings: Strong Growth But Lofty Valuation Weighs on Shares

Tempus AI (TEM) delivered a strong fourth-quarter earnings report, but expectations were sky-high, and market participants have been de-risking from high-beta assets. This set the stage for a sharp sell-off in after-hours trading, with shares tumbling approximately 12% following the report. While TEM’s financial results demonstrated solid growth, its lofty valuation of 387x forward price-to-earnings (P/E) and a stock that had run from $31 in mid-January to $92 ahead of the report left little room for error.

Earnings and Revenue Performance

For Q4, Tempus AI reported an adjusted EPS loss of ($0.18), which was worse than the consensus estimate of a ($0.15) loss. Revenue came in at $200.7 million, slightly below expectations of $202.8 million. However, the company demonstrated robust year-over-year growth, with net revenue increasing by 35.8% from the prior year. The Genomics segment, which includes next-generation sequencing (NGS) tests and oncology diagnostics, contributed $120.4 million, marking a 30.6% YoY increase. Meanwhile, Data and Services, which includes insights and AI-driven applications, posted $80.2 million in revenue, representing a strong 44.6% YoY growth. Gross profit for the quarter rose by 49.7% to $122.1 million, led by Data and Services, which continues to be a higher-margin business.

Despite the revenue shortfall, Tempus showed significant improvements in profitability. The company reported a net loss of $13.0 million, a significant improvement from the $50.5 million net loss in Q4 2023. Adjusted EBITDA also improved substantially to a loss of $7.75 million from a loss of $35.1 million a year ago. The positive trajectory toward profitability, particularly in the AI-driven data business, underscores Tempus’ ability to leverage its existing customer base and expand contract value.

Guidance and Key Business Drivers

Looking ahead, Tempus provided strong guidance for fiscal year 2025, forecasting revenue of approximately $1.24 billion, slightly above consensus estimates of $1.23 billion. The company also expects to turn Adjusted EBITDA positive in 2025, with an estimated $5 million, marking an improvement of approximately $110 million over 2024.

Several key drivers are fueling Tempus’ growth. The company’s core businesses—Genomics and Data—continue to expand at a rapid pace. Genomics saw unit growth of 22.5% YoY in Q4, with particularly strong demand in oncology testing. Meanwhile, Data and Services experienced an acceleration in revenue growth due to increased adoption by biopharma companies for biomarker discovery, clinical trial matching, and other AI-driven applications. Notably, Tempus closed its acquisition of Ambry Genetics on February 3, 2025, which is expected to enhance its genetic testing capabilities and open new market opportunities in hereditary screening and rare diseases.

Understanding Tempus AI’s Business Model

Tempus AI operates at the intersection of genomics, artificial intelligence, and data analytics. The company specializes in molecular diagnostics and AI-powered healthcare solutions, primarily serving oncology, cardiology, and neurology markets. Its Genomics business focuses on next-generation sequencing and molecular testing, helping physicians and biopharma companies with precision medicine. The Data and Services segment provides AI-driven insights, leveraging one of the largest structured clinical-genomic datasets to improve drug discovery and clinical trials.

Tempus has been aggressively expanding its footprint in the AI space, partnering with major pharmaceutical firms like Boehringer Ingelheim and Illumina to enhance biomarker development and research capabilities. The company ended 2024 with $940 million in Total Remaining Contract Value and an impressive 140% net revenue retention rate, indicating strong customer engagement and continued demand for its data products.

Market Reaction and Valuation Context

Despite the strong growth story, Tempus AI’s stock had priced in much of the optimism ahead of earnings. Shares surged from $31 in mid-January to a pre-earnings peak of $92, reflecting an exuberant rally of nearly 200% in just over a month. Even after pulling back from the highs on February 18, shares were still trading at a lofty $72 going into the report, equating to an eye-watering 387x forward P/E ratio.

The post-earnings decline of approximately 12% brought shares down to the mid-$60s, reflecting a 30% drop from last Friday’s high of $92 but still leaving the stock up 83% from the widely followed Pelosi filing on January 21. The sell-off was not entirely unexpected given the rich valuation and market conditions that have seen investors de-risking from high-beta, high-multiple names. Moreover, with the stock now 30% off its highs, the next key level to watch is the 50-day moving average, which sits around $50. This could serve as a critical support zone where long-term investors may look to re-enter.

Conclusion

Tempus AI’s Q4 results showcased strong top-line growth and improving profitability, but the company slightly missed expectations on both EPS and revenue. The market’s reaction underscores the risks of investing in high-growth, richly valued stocks, particularly in an environment where investors are pulling away from speculative, high-beta names. That said, Tempus continues to execute well, with significant momentum in its Genomics and Data businesses, and its guidance for 2025 suggests further upside potential. While near-term volatility is likely, the long-term story remains compelling, and the $50 level may present an attractive buying opportunity for investors looking to build a position in this AI-driven healthcare innovator.