Shares of Tempus AI (NASDAQ: TEM) tumbled 4% after the company was targeted in a short-seller report by Spruce Point. The report raised serious concerns about the integrity of Tempus AI’s product, the credibility of its management, and its financial reporting practices.
The Spruce Point report, which follows a forensic review of the precision medicine solutions company, criticized Tempus AI for the minimal revenue generated from its AI Applications product line, suggesting a disconnect between the company’s branding and its financial reality. In 2024, AI-related revenue was reported to be just $12.4 million, less than 2% of the company’s total revenue of $693.4 million. The prior year, AI revenue was only $5.5 million.
Moreover, the report highlighted concerns over Tempus AI’s leadership, noting CEO Eric Lefkofsky’s history with companies that experienced financial scandals, including bankruptcies and restatements. It also questioned the company’s partnerships and joint ventures, suggesting potential round-tripped sales and related party deals.
The report further scrutinized Tempus AI’s billing practices, indicating aggressive use of billing code 81479, known for minimal oversight and a high risk of abuse. This tactic could inflate revenue at the expense of patient care, with the report suggesting that Tempus AI and its acquired entity, Ambry, may prioritize revenue over clinical necessity.
In conclusion, Spruce Point warned investors of the company’s reliance on perceived equity value, aggressive accounting, and unsustainable practices. They projected a 50% – 60% potential downside risk to Tempus AI’s share price, advising extreme caution and close scrutiny of the company’s public statements. The sell-side consensus price target stands at $66.82 per share, which implies a mere 1% upside potential.
Investors reacted to the report by selling off shares, reflecting the market’s concern over the allegations made by Spruce Point.
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