Is Tempus AI the Next Big Artificial Intelligence Stock to Buy?

Artificial intelligence (AI) has been a huge investing theme over the past couple of years. Chances are, if you invested in a company involved with AI, you've seen its shares take off at some point. There are companies that end up being pretenders, but if you can find a tech company that will definitively benefit from AI, then you could be in an excellent position to earn a fantastic return.

Healthcare is one sector that AI can drastically transform in the future, by helping connect patients to more effective treatment options. And one company that could be at the forefront of those opportunities is Tempus AI (NASDAQ: TEM). At a market cap of less than $14 billion, could this be the next big AI stock to buy?

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What's so special about Tempus AI?

The opportunity for Tempus AI lies within its data. The company is well connected to many healthcare companies and institutions all over the world, and it can use its vast data set to train advanced AI models that can help transform the healthcare sector, resulting in better diagnostics and outcomes for patients. The company has access to more than 45 million patient records and over 400 petabytes of healthcare data. Tempus also says it has partnered with nearly all (95%) of the top 20 oncology companies.

The company has three main product lines: genomics, applications, and data services. They are integrated, and as Tempus performs more sequencing, that can benefit the other areas of its business and make not only its insights more useful, but also its data more valuable. The name of the game when it comes to AI is data, as many tech investors know. And Tempus AI hopes to be a key data provider for the healthcare sector.

Where Tempus AI is today

Tempus has been achieving some strong growth, with revenue totaling $334.2 million for the period ending Sept. 30, which was up 85% year over year. The vast majority of its growth has, however, come from its genomics business, which more than doubled to $252.9 million for the period. Its data and services segment rose by a more modest rate of 26%.

The company's growth has been impressive, but the negative is that the business is continuing to struggle with profitability. Last quarter, its operating loss was just under $61 million, which was an increase of 14% from the prior-year period. Meanwhile, over the past nine months, its operating cash burn has accelerated, from $149.8 million a year ago to now more than $181.3 million. A high degree of cash burn adds significant dilution risk as Tempus may need to raise cash via stock offerings in order to fund its future growth.

Is Tempus AI stock worth buying today?

Tempus is growing well, but its high cash burn and lack of improvement there would lead me to stay away from the stock for now. While losses may be justifiable for a fast-growing business, when it's burning through a large amount of cash and that isn't improving, that is a concerning red flag as it means the company isn't generating enough money even to cover its day-to-day operating activities.

There are many companies claiming to be involved with AI these days, and that's why it's prudent for investors to be extra diligent when investing in companies making these types of claims. Tempus isn't the only healthcare company with tons of data to train AI on, and the danger for investors is in assuming that it'll be a big winner in AI.

While it has been a hot buy this year and it has more than doubled in value already, Tempus is a stock I'd take a wait-and-see approach with for the time being.

David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.