Executive Summary / Key Takeaways

• Tempus AI is rapidly establishing itself as a leader in precision medicine by integrating artificial intelligence with vast multimodal healthcare datasets, driving significant growth in its Genomics and Data & Services segments.
• The company achieved its first positive adjusted EBITDA in Q3 2025, a decade-long goal, demonstrating increasing operational leverage despite continued heavy investments in technology and market expansion.
• Strategic acquisitions like Ambry Genetics and Paige.AI, alongside major collaborations such as the $200 million foundation model deal with AstraZeneca and Pathos, are expanding Tempus's data assets, technological capabilities, and market reach across oncology and beyond.
• Tempus's core investment thesis hinges on its differentiated AI platform and proprietary data, which enable superior diagnostic insights and drug development, positioning it uniquely against traditional diagnostic labs and emerging AI competitors.
• Key factors for investors to monitor include the pace of reimbursement for AI-driven algorithms, the sustained growth of its hereditary testing business, and the successful commercialization of its advanced AI applications like the oncology foundation model.

The AI-Powered Revolution in Precision Medicine

Tempus AI, Inc. stands at the forefront of a transformative shift in healthcare, where artificial intelligence and machine learning are becoming indispensable tools for improving patient care. Founded in 2015 by Eric P. Lefkofsky, Tempus embarked on a mission to liberate healthcare data from silos and render it actionable, thereby creating "Intelligent Diagnostics." This vision underpins its core business model: leveraging comprehensive genetic testing to generate vast multimodal datasets, which are then analyzed by AI to provide personalized insights for physicians, researchers, payers, and pharmaceutical companies. Tempus's strategic journey, marked by rapid technological development and targeted acquisitions, has positioned it as a critical enabler of precision medicine, aiming to make laboratory tests more accurate, tailored, and personal.

The broader healthcare industry is grappling with escalating costs and the imperative for more effective, individualized treatments. With healthcare expenditures in the U.S. reaching trillions annually and growing, the need for intelligent solutions that identify errors, reduce waste, and enable predictive and preventative care is paramount. Tempus believes AI is the only viable solution to this challenge, and its platform is designed to meet this demand. The company's ability to commercialize its data multiple times—both through diagnostic testing and subsequent data licensing—creates powerful network effects across its Genomics, Data, and nascent AI Applications product lines.

Technological Edge: The Engine of Differentiation

Tempus's core technological differentiation lies in its proprietary AI platform, which integrates laboratory test results with diverse multimodal datasets, including clinical, molecular, and imaging data. This platform is not merely a data repository; it is an operating system designed to make this data useful, enabling a free exchange of information between providers and life science companies. The tangible benefits of this technology are multifaceted. For instance, its AI-powered algorithms can return diagnostic results even when Next-Generation Sequencing (NGS) fails due to insufficient material, or provide rapid predictions for critical mutations in time-sensitive cases like non-small cell lung cancer.

The company's significant R&D investments are focused on continuously developing new laboratory assays, refining algorithms, and expanding its platform into new disease areas. Tempus has a large product and engineering team, including over 400 PhDs, dedicated to these efforts. A prime example is the three-year, $200 million data and modeling license agreement with AstraZeneca and Pathos AI, Inc., initiated in April 2025. This collaboration aims to build the world's largest foundation model in oncology, leveraging over 350 petabytes of connected clinical and molecular data. The stated goal is to uncover associations previously undetectable, providing physicians with insights into patient response to therapies, thereby fundamentally changing care by enabling more precise treatment selection. The first version of this model is expected to be complete in Q1 2026, with the cost of compute largely covered by its partners. This initiative is a non-exclusive agreement, allowing Tempus to pursue similar transformative deals.

Tempus's technological prowess extends to its FDA-cleared AI algorithms for electrocardiograms, such as those identifying atrial fibrillation and low ejection fraction, which are reimbursed by Medicare at approximately $120 per algorithm. This demonstrates a pathway for monetizing AI-driven insights beyond traditional lab work. The recent FDA 510(k) clearance for its updated Tempus Pixel, an AI-powered cardiac imaging platform, further enhances its capabilities in radiology by generating T1 and T2 inline maps from raw MRI data, improving efficiency and accuracy in cardiac MR image analysis. Similarly, the FDA 510(k) clearance for Tempus xR IVD, an RNA NGS In Vitro Diagnostic Device, supports drug development programs by offering deeper insights into disease mechanisms. These advancements underscore Tempus's commitment to scientific rigor and clinically meaningful AI-driven imaging technology, solidifying its competitive moat by offering differentiated, high-value solutions.

Financial Performance and Operational Momentum

Tempus AI has demonstrated robust financial performance, reflecting its strategic execution and technological advantages. For the nine months ended September 30, 2025, total net revenue reached $904.58 million, an 84% increase from $492.72 million in the same period of 2024. This growth was primarily driven by strong performance in both its Genomics and Data & Services segments.

The Genomics segment, encompassing Oncology and Hereditary testing, saw revenue of $688.53 million for the nine months ended September 30, 2025, up 108% year-over-year. This was fueled by a significant increase in test volumes, with approximately 582,000 tests delivered, compared to 198,200 in the prior year. Oncology test volumes increased by 24% to 246,500 tests, while the acquisition of Ambry Genetics contributed approximately 335,500 Hereditary tests, adding $263.40 million in net revenue. The average revenue per Oncology test also saw an incremental gain, rising from $1,530 in Q3 2024 to $1,600 in Q3 2025, largely due to increased Medicare reimbursement rates and the migration of xT volumes to the FDA-approved ADLT version.

The Data & Services segment generated $216.05 million in revenue for the nine months ended September 30, 2025, a 34% increase from $161.40 million in the prior year. This growth was primarily driven by increased demand for its Insights products, including contributions from the Pathos Foundation Model agreement. The segment's strong performance is further evidenced by its total remaining contract value exceeding $1 billion as of April 30, 2025, providing significant revenue visibility for future periods.

Despite its history of operating losses, Tempus achieved a significant milestone by reporting positive adjusted EBITDA of $1.48 million in Q3 2025, compared to a loss of $21.84 million in Q3 2024. This marks the first time the company has achieved positive adjusted EBITDA, a decade-long goal. For the nine months ended September 30, 2025, adjusted EBITDA was $20.28 million, a substantial improvement from a loss of $96.96 million in the prior year. However, the company still reported a net loss of $190.86 million for the nine months ended September 30, 2025, and an accumulated deficit of $2.30 billion as of September 30, 2025, indicating that GAAP profitability remains a longer-term objective.

Liquidity remains robust, with cash, cash equivalents, and restricted cash totaling $660.5 million as of September 30, 2025.

The company bolstered its balance sheet through a $750 million private offering of 0.75% Convertible Senior Notes due 2030 in July 2025, yielding net proceeds of $725.7 million. A portion of these proceeds was used to repay $293.5 million of Term Loan Facilities and for $41.8 million in Capped Call transactions, which are expected to reduce potential dilution from the convertible notes. Additionally, an At-the-Market (ATM) Sales Agreement, initiated in August 2025, generated $195.5 million in net proceeds, with approximately $300 million remaining available. These financing activities provide ample capital for ongoing operations, strategic investments, and potential acquisitions.

Competitive Landscape and Strategic Positioning

Tempus operates in a highly competitive and rapidly evolving healthcare technology landscape, facing both direct and indirect rivals. In the genomic diagnostics space, direct competitors include established players like Guardant Health , Exact Sciences (EXAS), and NeoGenomics (NEO), as well as sequencing giant Illumina (ILMN). While these companies offer robust diagnostic services, Tempus differentiates itself through its unparalleled integration of AI and multimodal data.

Tempus's "unique data asset" and proprietary software and tools allow it to "pull further and further apart from anybody else" in the oncology data space. Unlike competitors who may focus solely on sequencing or liquid biopsy, Tempus provides an end-to-end solution, integrating clinical, molecular, and imaging data to deliver highly contextualized results. This comprehensive approach is a significant competitive advantage, as it enables more actionable insights for physicians and researchers. For instance, in the minimal residual disease (MRD) market, Tempus offers a "really good portfolio of both naive products and informed products" spanning various cancers, positioning it to compete effectively against market leaders like Natera (NTRA), whose tumor-informed platform has set a high bar. Tempus's tumor-naive assays, continuously refined for sensitivity, are particularly advantageous where tissue is scant or unavailable.

The acquisition of Ambry Genetics has significantly strengthened Tempus's position in hereditary testing, a market that management believes is "much stronger than people thought" and poised for substantial long-term growth. Ambry's "gold standard assays" and "best-in-class hereditary platform" are capturing market share from competitors, driving growth in the low to mid-20s, significantly above the broader market's low double-digit expansion. This move also expands Tempus into new disease categories like pediatrics and rare diseases, where it aims to become a "very big player."

In the data and AI space, Tempus faces less direct competition. While large pharmaceutical companies may have internal data science capabilities, Tempus's vast, de-identified multimodal dataset and advanced AI applications are difficult to replicate. Management notes that when pharmaceutical R&D budgets face pressure, leveraging Tempus's data can help companies design trials more effectively and identify targets, creating a "little bit of a benefit" for Tempus's data business. This highlights Tempus's role as a strategic partner rather than a mere vendor. The company's extensive network, connecting to over 4,500 providers and institutions, facilitates bidirectional data exchange, further entrenching its platform within the healthcare ecosystem.

Outlook and Strategic Initiatives

Tempus AI's outlook is characterized by a commitment to sustained long-term growth, driven by continued investment in its core businesses and emerging AI applications. The company has raised its full-year 2025 revenue guidance to $1.265 billion and expects to achieve slightly positive adjusted EBITDA of approximately $5 million for the year. This guidance reflects strong performance in Genomics and Data & Services, with core Tempus Genomics expected to grow around 30% and the Ambry Hereditary business in the high teens, moderating from 2024's accelerants.

Key tailwinds for 2025 include the ongoing migration of xT volumes to the FDA-approved ADLT version, which is expected to reach 40% of xT volume by year-end, leading to incremental ASP gains. The xF liquid biopsy assay also saw a $300 uplift in Medicare reimbursement from the 2024 gap fill process. While MRD revenue is not a meaningful contributor to the 2025 guide due to ongoing reimbursement processes, Tempus anticipates MolDx reimbursement by late 2025, with a more significant revenue impact expected in 2026. The foundation model collaboration with AstraZeneca (AZN) and Pathos is expected to ramp up revenue recognition over its three-year term, with the first model version anticipated in Q1 2026.

Tempus plans to maintain high levels of investment in product innovation, including new laboratory assays, algorithm development, and platform expansion into new disease areas. This includes further studies for its tumor-naive MRD assay in non-small cell lung cancer and colorectal cancer, with data readouts expected in 2026. The company's strategy is to "dial that up every quarter in a more aggressive manner as reimbursement makes that more affordable," prioritizing sustainable growth over short-term spikes.

Risks and Challenges

Despite its compelling growth trajectory and strategic advantages, Tempus AI faces several risks. The company's continued net losses and accumulated deficit of $2.30 billion highlight the need for sustained profitability. While adjusted EBITDA is now positive, achieving GAAP profitability and consistent positive cash flow from operations remains a challenge, particularly given ongoing heavy investments in R&D and technology.

Reimbursement for AI-driven algorithms represents a significant opportunity but also a key uncertainty. The U.S. healthcare system currently lacks a clear mechanism to reimburse for AI insights, making it difficult to predict revenue from this segment. Although Tempus has seen success with Medicare reimbursement for some FDA-approved ECG algorithms, scaling this across its broad portfolio of AI applications will require continued advocacy and regulatory adaptation.

The company is also exposed to litigation risks, including patent infringement lawsuits with Guardant Health Inc. (GH) and a federal securities class-action lawsuit alleging misleading statements regarding AI revenue and acquisitions. While Tempus intends to vigorously defend itself, such legal proceedings can incur significant costs and divert management resources. Furthermore, macroeconomic conditions could impact demand for its Data and Services products, particularly from earlier-stage biotechnology companies, although large pharma clients have shown resilience. The Convertible Senior Notes and At-the-Market offering, while providing liquidity, introduce potential dilution risks for stockholders and could impact the Class A common stock price.

Conclusion

Tempus AI, Inc. is a compelling investment story rooted in the convergence of advanced genomics, artificial intelligence, and a rapidly expanding multimodal data ecosystem. The company's strategic vision to deliver Intelligent Diagnostics, coupled with its robust operational execution, has enabled it to achieve significant revenue growth and its first positive adjusted EBITDA. Its technological leadership, particularly in developing a vast data asset and pioneering AI-driven insights, provides a formidable competitive moat against both traditional diagnostic providers and emerging tech players.

The path forward for Tempus is defined by continued investment in its innovative technology roadmap, including the ambitious oncology foundation model, and the disciplined expansion of its Genomics and Data & Services businesses. While challenges such as securing broader reimbursement for AI algorithms and managing ongoing losses persist, Tempus's unique positioning, strategic partnerships, and commitment to long-term sustainable growth underscore its potential to fundamentally transform precision medicine and deliver substantial value to investors.