Goldman Sachs Group, Inc. initiates coverage on Tempus AI (TEM.US) with a "Neutral" rating: diagnostics business awaits reimbursement tailwind, while data contracts enter a "validation period"

Goldman Sachs Group, Inc. released a research report initiating coverage on Tempus AI (TEM.US) with a "Neutral" rating and a price target of $75. Based on the latest share price of $78.03, this implies approximately 4% downside. The call is not particularly bearishthe near-term reimbursement catalysts for the diagnostics business are quite specific; but the renewal of large customer contracts in the data business hangs over the valuation like a question mark. Tempus was founded by Eric Lefkofsky, co-founder of Groupon, and went public in 2024. Its core story is connecting data generated from tumor genomic testing with electronic medical records, imaging, and follow-up outcomes, and selling that to pharmaceutical companies. The company's two product linesdiagnostics and datafeed each other: the greater the testing volume, the richer the multimodal data; the richer the data, the more willing pharma companies are to pay, and the more training material the algorithms have. Goldman Sachs Group, Inc. estimates that diagnostics currently contributes about 75% of revenue, while data and applications account for about 25%. But the latter is the anchor of the company's long-term strategy. Diagnostics: The reimbursement window is opening The most clear-cut near-term catalyst is xT. This solid tumor companion diagnostic test has received FDA approval, and Tempus can migrate its entire solid tumor DNA product portfolio into a unified ADLT reimbursement framework. Management expects an average selling price increase of about $200, bringing roughly $85 million in annualized revenue starting in 2027. The key is the word "incremental": this is built on existing testing volume and does not require large-scale commercial reinvestment, so the margin uplift is more direct. The bigger upside potential lies in xF liquid biopsy. This test has been submitted to the FDA, and Goldman Sachs Group, Inc. expects approval in the second half of 2027. If approved and eligible for ADLT pricing, the reimbursement rate could rise from the current approximately $3,200 to about $7,500, with an average selling price increase of about $550. Adding xT and xF together, management estimates that by 2028 they could unlock approximately $400 million in incremental revenue. For a company with 2025 revenue of $1.272 billion and projected 2026 revenue of $1.593 billion, this is not a small number. Other initiatives in progress include: MRD testing ramping up, with about 9,000 cases processed in 2Q26, up 38% quarter over quarter, but only about 10% to 15% of the sales team is currently selling MRD, leaving considerable elasticity once reimbursement coverage expands; xH hematologic oncology whole-genome sequencing recently launched; and the algorithm attach rate in oncology orders reached about 45% in 2Q26. In addition, Tempus has signed a definitive agreement to acquire Personalis, which is closely tied to individualized neoantigen therapy programs with Moderna (MRNA.US) and Merck & Co., Inc. (MRK.US). Goldman Sachs Group, Inc. has not included Personalis revenue in its model, but notes that if intismeran commercializes smoothly, related testing volume could reach approximately 60,000 cases by 2035. Data: Contract renewals are 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 the data business. It has partnered with 19 of the top 20 pharmaceutical companies and more than 250 biotechnology companies. Customer concentration is indeed declining: revenue from the top five customers fell from 85% in 2020 to 59% in 2025. Over the next one to two years, several large contracts will enter renewal windows. Astrazeneca PLC Sponsored ADR's (AZN.US) MSA was signed in November 2021, with a minimum spend of $220 million, terms extending through December 31, 2026, after which Astrazeneca PLC Sponsored ADR can choose to add another $100 million and extend to 2028. GlaxoSmithKline plc Sponsored ADR's (GSK.US) MSA was originally signed in August 2022, amended in 2024, with a minimum spend of $180 million, lasting through 2027, after which it can add another $120 million through 2030. Recursion's (RXRX.US) MSA was signed in November 2023, with an initial fee plus annual license fees totaling $160 million through 2028, but Recursion can terminate after November 2026 with 90 days' notice and payment of a termination fee. Goldman Sachs Group, Inc. does not make a judgment on whether the renewals will succeed or fail, but points out that investors will be watching these milestones closely. The reason is simple: if the large contracts are smoothly extended, the "stickiness" and differentiation of Tempus's data business will be validated; if there are missteps, the mid-term guidance of 25% growth will come under pressure. Moat: First-mover advantage does not equal a permanent barrier Tempus is indeed ahead in multimodal data collection: generating data through its diagnostics business, building data pipelines with medical institutions, and then collaborating with industry organizations. But Goldman Sachs Group, Inc. cautions that the company does not own the raw EHR data. Its moat comes partly from early investmentbuilding data interfaces with hospital legal and IT teams takes time and moneyand partly from AI/ML capabilities that clean raw data into datasets trainable for models. The problem is that AI tools are advancing so quickly that the time needed for latecomers to build similar pipelines may shrink. Competition is coming from all directions. Diagnostic peers are beginning to emphasize monetization of their own data: Guardant Health's (GH.US) Infinity AI, Natera's (NTRA.US) AI Foundation Models, and Caris's (CAI.US) partnership with Flatiron are all examples. Roche (RHHBY.US) has Flatiron's oncology EHR and Foundation Medicine's comprehensive oncology testing, giving it a natural combination advantage. Goldman Sachs Group, Inc. believes that these competitors, if they want to replicate Tempus's multimodal dataset, will most likely need to work directly with EHRs or medical institutions; but once Tempus proves the business model is viable, there will be no shortage of fast followers. Tempus currently trades at about 8x 2027 EV/Sales, which Goldman Sachs Group, Inc. views as a discount to the peer median. The firm uses approximately 7x forward sales as its valuation basis to arrive at a $75 price target. The financial model shows projected 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 only by 2028, estimated at $0.16. Overall, Goldman Sachs Group, Inc. is weighing the highly visible near-term growth prospects of the diagnostics business against the uncertainty of mid-term contract renewals in the data and applications segment, and the firm remains on the sidelines until it gains clearer visibility on those contract renewals and the competitive landscape.