What’s a clear sign that a small artificial intelligence (AI) company has huge potential? When the small AI company attracts interest – and money – from a large AI company.
There aren’t many AI companies on the planet bigger than Google’s parent company Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL). Few have an AI track record as impressive as Alphabet’s. The Google Brain (now part of Google DeepMind) invented the AI transformer architecture – the “T” in ChatGPT. Google DeepMind developed the Go-play phenomenon AlphaGo and AlphaFold, an AI system that predicts the structures of proteins.
The Google team undoubtedly recognizes innovative new AI technologies when they see them. And Google is backing a new AI company that conducted its initial public offering (IPO) last week.
The latest AI IPO
Eric Lefkofsky founded Tempus AI (NASDAQ: TEM) in 2015 and continues to serve as CEO. The company was originally called Bioin, but changed its name to Tempus Health in 2015, Tempus Labs in 2016 and Tempus AI in 2023.
Lefkofsky is no stranger to starting new businesses. He was a co-founder Groupon and venture capital firm Lightbank in 2008. He also co-founded InnerWorkings, Mediaocean, Echo Global Logistics and Pathos AI.
Tempus uses AI to provide what it calls “intelligence diagnostics.” The diagnostic tests are contextualized for individual patients using their clinical data. The company believes this approach can help physicians prescribe more effective therapies for patients and help researchers accelerate the discovery and development of new therapies.
On Friday, June 14, 2024, Tempus conducted its initial public offering on the Nasdaq scholarship. The healthcare AI company’s shares rose as much as 15% on its first day of trading to close down nearly 9%. Tempus AI’s market capitalization is now above $6 billion.
Why does Google like Tempus AI?
Google’s financial relationship with Tempus AI dates back to June 2020. Tempus issued a $330 million convertible promissory note to Google as part of an agreement to use Google Cloud. Nearly five months later, Tempus gave Google $80 million in preferred stock to partially satisfy its original promissory note.
As you might expect, Google doesn’t always make these kinds of financial arrangements with its small cloud customers. What did the tech giant see in Tempus that made it willing to make this deal?
I suspect Tempus AI’s impressive growth was a key factor. The company’s revenue increased by 183% between 2002 and 2023. Although Tempus remains unprofitable, its adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) are moving in the right direction.
Tempus AI’s customer base underlines how much value the technology provides. Its products are used by approximately 95% of the world’s 20 largest public biopharmaceutical companies. Tempus has partnerships with more than 200 biopharmaceutical companies. More than 7,000 physicians and more than 65% of U.S. academic medical centers have used Tempus AI products.
Should You Buy This Hot New AI Stock?
Risk-averse investors are unlikely to like Tempus AI. The stock could be very volatile. As mentioned earlier, the company is not profitable.
However, Tempus estimates that its genomics products in oncology and neuropsychiatry target a total addressable market of more than $70 billion. The addressable market for the company’s data and services products is at least $119 billion. Tempus believes its AI application products that focus on algorithmic diagnostics could have a long-term market opportunity that could be greater than all its other product lines combined.
The use of AI in healthcare diagnostics is still in its infancy. Tempus AI has already proven that it can be successful in this market. It has an experienced management team. Google’s financial support also says a lot. I think this hot new AI stock seems like a good choice for aggressive investors.
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Suzanne Frey, a director at Alphabet, is a member of The Motley Fool’s board of directors. Keith Speights has positions at Alphabet. The Motley Fool holds positions in and recommends Alphabet. The Motley Fool recommends Nasdaq. The Motley Fool has a disclosure policy.
Google invested in this popular new stock in the field of artificial intelligence (AI). Would you? was originally published by The Motley Fool
