Cerence (CRNC) has seen its shares skyrocket by 320% over the past three months, based on news of a notable recent collaboration with NVIDIA (NVDA). Further, the company made significant strides by securing 10 customer wins, launching six Gen AI programs, and establishing a partnership with JLR to develop next-gen in-car experiences. Despite facing executive turbulence and financial struggles in 2024, the successful integration of generative AI solutions, a record number of platform launches, and a robust partner network have the company on an upward trend.
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The stock trades at a discount to industry peers, making it a potential option for value-oriented investors willing to endure the volatile ride.
Move Over KITT – Here Come Talking Cars
Cerence is a leader in AI technology for the mobility/transportation industry and offers a range of services, including edge software components, cloud-connected components, virtual assistant coexistence, and professional services. In addition, it specializes in conversational artificial intelligence-based solutions featuring speech recognition, natural language understanding, speech signal enhancement, text-to-speech, and acoustic modeling technology.
The company has made significant strides in conversational and Gen AI and audio and communication AI technologies. Renowned automotive OEMs like Microsoft (MSFT), Volkswagen (VWAGY), BMW (BMWKY), and Renault (RNLSY) have adopted Cerence’s voice assistant systems to redefine the in-car interaction experience. The company’s AI technology now equips over 500 million cars worldwide.
In 2024, Cerence launched 22 platforms, four of which were unveiled at year’s end. Recently, it announced a multi-year agreement with luxury car manufacturer JLR to enhance the in-car experience with its AI technologies. Additionally, an expanded collaboration with Nvidia will empower the Cerence Automotive Large Language Model, which is set to revolutionize in-vehicle computing technology by developing cars that respond to drivers’ voice commands.
Top and Bottom-line Beats
Cerence reported positive financial performance for Q4 and the Fiscal year 2024. The company’s Q4 revenue of $54.81 million exceeded analysts’ expectations by $7.16 million. A gross margin of 73.7% marked an improvement compared to 67.7% in 2023, while cash flow from operations was $6.1 million.
However, the company reported a GAAP net loss of $20.4 million for the quarter and $588.1 million for the fiscal year, with GAAP earnings per share (EPS) of -$0.49.
Management has issued guidance for fiscal year 2025, projecting revenue in the range of $236 to $247 million. The company’s transformation plan is set to deliver annualized net cost savings of $35 to $40 million.
Positive Momentum and Value
The stock has been volatile, with the shares subject to significant moves up and down, ranging between $2.34 to $27.50 over the year. Despite the strong run at the end of 2024, the stock is down -26.46%. Yet the strong move has the shares showing positive price momentum as they trade above the major moving averages. The P/S ratio of 1.73x looks to be a discount to the Information Technology sector average of 3.15x.
Analysts following the company have taken a cautious approach to CRNC stock. Cerence is rated a Hold overall, based on the recent recommendations of six analysts. Their average price target for CRNC stock is $7.75, representing a potential downside of -43.68% from current levels.
Final Considerations on CRNC
Cerence has made a stunning turnaround in recent months despite previous struggles. Its collaboration with industry giants such as NVIDIA and luxury car manufacturers, coupled with new platform launches and predicted cost savings from its transformation plan, positions the company for future upside growth. Although the stock has witnessed extreme volatility recently, it trades at a discount compared to its industry peers, providing value-oriented investors with potential growth opportunities.
