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Investing.com -- Shares of Tempus AI Inc (NASDAQ:TEM) surged 15% on Monday, recovering some of last week’s sharp losses after a short-seller report from Spruce Point Capital triggered a 13% weekly drop. The rebound followed a note from TD Cowen’s Dan Brennan, which downplayed the severity of the concerns raised and characterized the selloff as largely overdone.
Spruce Point alleged that Tempus misrepresented the importance of its artificial intelligence business while highlighting risks related to related-party revenue, leadership history, and aggressive billing practices. The report showed AI-related revenue totaled just $12.4 million in 2024, less than 2% of total revenue, which it argued suggests “a disconnect between the company’s branding and its financial reality.”
The report also scrutinized CEO Eric Lefkofsky’s track record, stating he had been linked to previous corporate failures, including bankruptcies and restatements. Questions were raised about a $200 million customer contract with Pathos AI and a $95 million joint venture with SoftBank (TYO:9984), both of which were flagged for potential related-party characteristics.
TD Cowen countered these allegations, saying many of the points were known and had already been disclosed to investors. “We found many of the issues to be already known, other points exaggerated&some new ones worth exploring,” Brennan wrote in a research note that reiterated a Buy rating and a $62 price target for the stock.
The note, which followed a discussion with Tempus’s CFO, acknowledged investor concern about “the nature of several customer transactions TEM has entered into [that] have (or appear to have) a related party nature.” However, Brennan emphasized that “some stated concerns [were] misleading and/or incorrect,” adding that while scrutiny of these deals could persist, individually they did not appear materially damaging.
Concerns about revenue quality also extended to Tempus’s use of reimbursement code 81479, which the short-seller said could allow the company to inflate revenue at the expense of clinical necessity. The report also suggested possible round-tripping of revenue through related entities, warning of a potential 50% to 60% downside risk in the stock.
Still, TD Cowen noted that Tempus shares had been up nearly 100% on the year ahead of the short report, suggesting the company was vulnerable to a negative catalyst. Brennan said, “With the stock up 100% YTD into the report, we believe the valuation didn’t leave much room for negative news.”
Investors have seemingly brushed off the report and have since "bought the dip." The average sell-side price target remains at $66.82, implying that Wall Street largely continues to back the precision medicine firm despite recent volatility.
