Macro
Tempus AI Targets $5.9B Valuation in Rare AI-Themed IPO
Tempus AI aims to raise $400 million in IPO, valuing the company at $5.9 billion despite $214.1 million net loss.
Key Takeaway
- Tempus AI is set to go public on Nasdaq, aiming to raise $400 million with a market value of $5.9 billion.
- Despite high investor demand, AI-themed IPOs are scarce as companies like DataBricks and CoreWeave prefer private funding.
- Valuation concerns persist; Tempus AI's IPO valuation is at a discount compared to its last funding round.
Tempus AI's IPO
Tempus AI, a healthcare diagnostics company leveraging artificial intelligence to enhance diagnostic testing, is set to go public on the Nasdaq this week. The company plans to sell 11 million shares at a price range of $35-$37, aiming to raise approximately $400 million, which would value the company at $5.9 billion, according to Pitchbook. Tempus AI's mission is to revolutionize precision medicine by integrating AI, including generative AI, to make laboratory tests more accurate and personalized. The company reported total revenues of $531.8 million in 2023 but also incurred a net loss of $214.1 million. Despite the financial loss, Tempus AI believes its technology can significantly improve therapy selection and treatment decisions in collaboration with physicians.
Scarcity of AI IPOs
While AI remains a dominant investment theme in 2024, AI-themed IPOs have been relatively rare. Astera Labs and Reddit, which have AI components, went public earlier this year and have seen their stock prices rise by 73% and 77%, respectively. However, other tech IPOs have had mixed results; for instance, Ibotta is down 11% from its initial price, while Rubrik is up a modest 3%. The limited number of AI IPOs can be attributed to the ease with which AI companies can raise funds in private markets. "The most in-demand companies still have no problem raising money privately," said Matt Kennedy from Renaissance Capital. Companies like DataBricks, CoreWeave, and Scale.ai have successfully raised substantial funds in private rounds, with valuations reaching $43 billion, $14 billion, and $1.1 billion, respectively.
Valuation Challenges
One of the significant hurdles for AI companies considering going public is the issue of valuation haircuts. Many tech companies that raised funds during the pandemic are now under pressure to lower their valuations to attract public market investors. Tempus AI, for example, has been raising funds at a flat valuation in recent rounds. "It makes sense for them to try their hand at the public market," said Howe Ng at Forge Global Holdings. In contrast, companies like Anthropic have managed to raise funds at higher valuations, with a recent $4 billion raise valuing the company at $18.4 billion. Despite these challenges, Matt Kennedy remains optimistic about the future of AI IPOs, suggesting that the current scarcity might be "the tip of the iceberg" before a more significant influx of AI companies into public markets from 2024 to 2027.
Street Views
Matt Kennedy, Renaissance Capital (Bullish on AI IPOs):
"The most in-demand companies still have no problem raising money privately... A lot of AI companies are staying private while they scale up, so this might just be the tip of the iceberg, before AI really hits public markets next year through 2027."
Howe Ng, Forge Global Holdings (Neutral on Tempus AI's valuation strategy):
"They have been raising at a flat valuation for the last few rounds. It makes sense for them to try their hand at the public market, versus other more pure play AI companies like Anthropic and Scale AI, which have been raising at higher step-ups in the private market. Looks like their target IPO valuation is also at a discount to their last funding round."
