A Cathie Wood Favorite Is Falling: Why Tempus AI Stock Is Imploding Today

Shares of Tempus AI (NASDAQ: TEM) are falling on Wednesday. One of Cathie Wood's largest holdings, the company's stock plummeted 18.7% as of 2:15 p.m. ET. The collapse comes as the S&P 500 (SNPINDEX: ^GSPC) and the Nasdaq Composite (NASDAQINDEX: ^IXIC) were mostly flat.

Tempus, a "precision medicine" company that leverages artificial intelligence (AI) to better treat patients, was the target of a short report from short-seller Spruce Point Capital Management that alleges the stock has as much as a 60% downside.

Tempus faces significant allegations

The report, released as the market opened today, outlines Spruce's allegations. The most damning of these include a history of company leadership, especially founder Eric Lefkofsky, creating advanced technology companies that make bold claims they often fail to back up. The report says that the leadership exits the companies, having made millions, early, leaving shareholders with losses or "lackluster" returns.

The report also alleges that Lefkofsky and Tempus leadership are misleading the public as to their use of AI. The report states that just before the company IPO'd, as AI hype was peaking, the company rebranded from Tempus Labs to Tempus AI. Despite its centrality in the company's new name, branding, and public statements, only 2% of its 2024 revenue came from AI applications. The report alleges that Tempus' actual ability to utilize AI is vastly overstated.

Image source: Getty Images.

There is reason to be skeptical

While there are many more allegations -- like accounting irregularities and weakening relationships with core customers like AstraZeneca -- it's important to take it with a grain of salt. The short-seller has a financial stake in seeing Tempus' stock price decline. Still, the report is convincing, and even if most of the allegations prove untrue, I agree with its final assessment that the stock is already overpriced. I would stay away from Tempus, even if it is one of Cathie Wood's favorites.

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Johnny Rice has no position in any of the stocks mentioned. The Motley Fool recommends AstraZeneca Plc. The Motley Fool has a disclosure policy.