Tempus AI enters coverage with an Avoid rating at $85.08. The business is improving quickly. The share price has improved faster. Since second-quarter results on 30 July, the stock has risen 92%, and it now sits about 20% above a probability-weighted fair value of $68. The name becomes interesting near $58.

The case splits cleanly into what is going right and what the price already assumes.

Three reasons the rally has substance

1. The business reached break-even. Q2 revenue rose 22% to $382.5 million, oncology test volume grew 31%, and Tempus posted its first GAAP net income, $5.6 million. Full-year guidance now calls for $1.595-1.605 billion of revenue and about $65 million of adjusted EBITDA.

2. Reimbursement is about to step up. The FDA approved the tumor-only version of the xT CDx test on 29 May. That moves the solid-tumor portfolio to a higher Medicare rate. Management expects roughly $85 million of extra annual revenue from 2027 and about $400 million combined in 2028 if the liquid biopsy test is also approved.

3. The Personalis deal got an early win. Tempus agreed in July to buy Personalis, a cancer-monitoring test maker, for about $1.5 billion in stock. A month later, Merck and Moderna reported a positive Phase 3 melanoma trial for a personalised vaccine designed with Personalis sequencing. Tempus shares jumped 24% that day.

Three reasons to stay out at this price

1. The valuation now prices in 2028. At about 7.4 times estimated 2027 revenue, the market is paying today for reimbursement gains that arrive over two years and a vaccine market that does not yet exist. The stock trades 19% above the average analyst target of $68.56.

2. Dilution and cash burn are still real. Paid fully in stock at today’s price, Personalis would add roughly 10% to the share count. Trailing free cash flow is still negative $263 million, and positive cash flow is only a year-end target.

3. The setup is crowded and volatile. About 24% of the float is sold short, the stock’s beta is 3.7, and insiders filed notices of proposed sales in late September. RSI sits above 70. A stock that rose 24% in a day can fall that fast on a soft quarter.

The scenarios run from $36 in a bear case, where the multiple returns to July levels, to $103 if growth and pricing both beat. Third-quarter results, expected in early November, are the next test of volume, pricing and cash flow.

Scenario detail, the full developments analysis and the scorecard sit in the complete Tempus AI, Inc. (TEM) report on our Reports page.