With the New Year upon us, I’ve been drawing up ideas for stocks to buy for my portfolio. Here’s one of them.
Searching for big potential AI winners
The investing theme of 2024 was undoubtedly artificial intelligence (AI). This revolutionary technology has captured the public’s imagination in ways not seen since the birth of the internet.
Nvidia has been the standout winner so far, with its stock up 742% following the release of ChatGPT in November 2022. Shares of AI software firm Palantir Technologies have done even better — up nearly 1,000% over the same period!
However, there are likely to be more big AI winners as the technology improves and is applied to other areas. Tempus AI (NASDAQ: TEM) might just be one of those.
Using AI to transform cancer care
Google-backed Tempus owns the world’s largest library of clinical and genomic data, including over 6m patient records. It specialises in using AI and data analytics to advance precision medicine, particularly in oncology, by making sense of these massive unstructured datasets.
Physicians and researchers can use its AI-driven insights to personalise patient care and speed up drug development. The firm’s mission is “to help make sure patients are on the right drug at the right time“.
Scottish Mortgage Investment Trust is incredibly bullish on the company. Its portfolio director recently wrote: “Tempus sits at the intersection of two exciting trends — genomic profiling and artificial intelligence-driven health data…Looking forward, we maintain a high conviction in its ability to offer extreme long-term returns, by using AI to transform cancer care.”
Financial performance
The firm is growing strongly. In Q3, revenue increased by 33% year on year to $181m. For the full year, management expects approximately $700m in revenue, which would represent 32% growth.
Founder and CEO Eric Lefkofsky commented: “The overall business performed well in the quarter, as demonstrated by accelerating volume growth in our genomics business and accelerating revenue growth in our data and services business.”
However, Tempus is not yet profitable, and recorded a net loss of $75.8m in Q3. Investing in a loss-making business would certainly add risk for me.
Also, the firm announced the acquisition of Ambry Genetics, a leader in genetic testing. This was for $375m in cash ($300m of this financed via debt) and $225m in shares. It expects Ambry to generate over $300m in revenue and generate more than $40m in EBITDA for 2024.
Debt adds further risk, even though Tempus should still have around $350m in cash following this acquisition.
The next amazing revolution
Looking ahead, analysts reckon the global market size of AI in oncology could grow from $891m in 2022 to $10.7bn in 2032. Tempus is a leader in this area, working with over 200 healthcare companies, including AstraZeneca and GSK.
In early 2024, Nvidia CEO Jensen Huang said: “Where do I think the next amazing revolution is going to come? There’s no question that digital biology is going to be it.”
Digital biology is the fusion of AI, big data, and healthcare. Therefore, Tempus looks well-positioned for strong long-term growth.
The share price has crashed 50% since Donald Trump nominated Robert F Kennedy Jr to become health secretary. That looks like a massive overreaction to me, and I’m considering taking advantage of the dip.
