Goldman Sachs Initiates Tempus AI (TEM.US) with "Neutral" Rating: Diagnostic Business Awaiting Reimbursement Dividends, Data Contracts Enter "Verification Period"

According to Zhitong Finance APP, Goldman Sachs has released a research report initiating coverage of Tempus AI (TEM.US) with a "Neutral" rating and a target price of $75. Based on the latest share price of $78.03, this implies about 4% downside potential. This judgment is not pessimistic—the reimbursement catalyst for the diagnostics business is quite specific in the short term; however, the renewal of major contracts in the data segment remains a question mark looming over the valuation.

Tempus was founded by Groupon co-founder Eric Lefkofsky and went public in 2024. The core story revolves around integrating data generated from tumor genetic testing with electronic medical records, imaging, and follow-up results to sell to pharmaceutical companies. The company’s two product lines—diagnostics and data—are mutually reinforcing: the higher the testing volume, the richer the multimodal data; the richer the data, the more willing pharmaceutical companies are to pay, and there is more material to train algorithms. Goldman Sachs estimates that diagnostics currently contribute about 75% of revenue, with data and applications accounting for about 25%. However, the latter is the anchor for the company’s long-term strategy.

Diagnostics: The Reimbursement Window Is Opening

The clearest near-term catalyst is xT. This solid tumor companion diagnostic test has received FDA approval, allowing Tempus to migrate its entire solid tumor DNA product portfolio into a unified ADLT reimbursement framework. Management expects an average selling price increase of about $200, leading to annualized revenue of approximately $85 million starting in 2027. The key word is "incremental": this builds on existing testing volume without requiring large-scale additional investment, thus giving a more direct boost to profit margins.

The bigger growth potential lies in xF liquid biopsy. This test has been submitted to the FDA, and Goldman Sachs expects approval in the second half of 2027. If approved and eligible for ADLT pricing, the reimbursement rate could rise from the current $3,200 to about $7,500, with an average selling price increase of around $550. Combined, xT and xF could unlock an incremental revenue of about $400 million by 2028, according to management estimates. For a company with projected revenues of $1.272 billion in 2025 and $1.593 billion in 2026, this is significant.

Other ongoing projects include: MRD testing volume ramping up, handling about 9,000 cases in 2Q26, a 38% quarter-on-quarter growth, though currently only about 10%-15% of the sales team is selling MRD. There is room for elasticity once reimbursement expands. The xH blood cancer whole-genome sequencing was recently launched; the algorithm attachment rate for oncology orders reached about 45% in 2Q26. Additionally, Tempus has signed a definitive agreement to acquire Personalis, which is closely related to Moderna (MRNA.US) and Merck (MRK.US)'s personalized neoantigen therapy projects. Goldman Sachs did not include Personalis revenue in its model but noted that if intismeran is commercialized smoothly, related testing volume could reach around 60,000 instances by 2035.

Data: Contract Renewal as the Litmus Test

The data business story began earlier and is more complex. Tempus’s Insights product licenses de-identified clinical, molecular, and imaging data to pharmaceutical companies, accounting for more than 80% of its data business. It has collaborated with 19 of the top 20 pharma companies and over 250 biotech firms. Customer concentration is indeed declining: the revenue share from the top five clients dropped from 85% in 2020 to an estimated 59% in 2025.

In the next 1 to 2 years, several major contracts will come up for renewal. AstraZeneca (AZN.US)’s MSA was signed in November 2021, with a minimum commitment of $220 million, extending through December 31, 2026; AstraZeneca has the option to add another $100 million and extend to 2028. GlaxoSmithKline (GSK.US)’s MSA was originally signed in August 2022 and revised in 2024, with a minimum commitment of $180 million lasting through 2027, and an option to add $120 million and extend to 2030. Recursion (RXRX.US)’s MSA was signed in November 2023, with initial and annual license fees totaling $160 million by 2028; however, Recursion can give 90 days’ notice of termination after November 2026 and pay a termination fee.

Goldman Sachs does not make a judgment on the outcome of renewals, but points out that investors will closely monitor these milestones. The reason is simple: if large contracts are smoothly extended, the "stickiness" and differentiation of Tempus’s data business will be validated; if there are missteps, the medium-term guidance of 25% growth rate will face pressure.

Moat: First-mover Advantage Does Not Equal Permanent Barriers

Tempus indeed leads in multimodal data collection: it generates data through its diagnostics business, establishes data pipelines with healthcare institutions, and collaborates with industry organizations. However, Goldman Sachs notes that the company does not own the raw EHR data. Its barriers are partly from early investments—building data interfaces with hospital legal and IT teams requires time and money—and from AI/ML capabilities in cleaning raw data into datasets suitable for model training. The challenge is, AI tools are advancing too rapidly, and the time lag for late entrants to build similar pipelines may shrink.

Competition is emerging from all directions. Diagnostic peers are beginning to focus on monetizing their own data: Guardant Health (GH.US)'s Infinity AI, Natera (NTRA.US)'s AI Foundation Models, and Caris (CAI.US) partnering with Flatiron are examples. Roche (RHHBY.US) holds Flatiron's oncology EHR and Foundation Medicine's comprehensive tumor testing, providing innate combined advantages. Goldman Sachs believes that for these competitors to replicate Tempus's multimodal dataset, they will likely need to partner directly with EHRs or healthcare institutions; yet after Tempus has proven the business model viable, fast followers are likely to emerge.

Tempus currently trades at about 8x 2027 EV/Sales, which Goldman Sachs considers a discount to the industry median. The bank bases its valuation on a forward sales multiple of about 7x, arriving at a $75 target price. The financial model projects revenue of $1.593 billion in 2026, $1.964 billion in 2027, and $2.373 billion in 2028; EBITDA rising from $98.2 million in 2026 to $237.5 million in 2028; and EPS turning positive at $0.16 in 2028. In general, Goldman is weighing the highly visible near-term growth prospects of the diagnostics business against the medium-term contract renewal uncertainties in the data and applications division. Until there is further clarity on these contract renewals and the competitive landscape, the bank remains on the sidelines.