Serens NASDAQ: CRNC is an AI stock that has caught the attention of many investors recently. Since its last earnings report on November 21, the stock has soared 155% as of its close on November 25. So, what does this company do and why am I mentioning it in the same breath as the vaunted SoundHound AI? NASDAQ:SOUN? I’ll answer these questions as well as give my overall opinion on the stock.
Cerence: AI car assistants rival SoundHound’s AI
Serens today
(As of 12:39 pm ET)
- 52 week range
- US$2.34
▼
$21.67
- Target price
- $8.16
Cerence creates artificial intelligence virtual assistants with a focus on the automotive market. Its solution is aimed at ensuring interactive interaction between vehicles, drivers and other passengers. In this market, it is a clear competitor to SoundHound AI. SoundHound’s voice recognition platform is also targeting the automotive market. However, SoundHound also competes in many other markets, including quick service restaurants and customer service centers.
Cerence has a wide range of customers in the automotive industry, including original equipment manufacturers (OEMs) such as Ford Motor. New York Stock Exchange: FGili car OTSMKTS: HELYGeneral Motors New York Stock Exchange: CEOand several other big names.
Changes and new products in Cerence Spark cause investor optimism
Cerence shares rose after earnings as the company beat expectations on both revenue and profit. Revenue was 15% higher than expected, while the adjusted loss per share was just $0.07 versus an expected loss of $0.38 per share.
Cerence Inc. price chart (CRNC) on Tuesday, November 26, 2024
Cerence’s new CEO, Brian Krzanich, adds to the optimism. He previously held the same position at Intel. NASDAQ: INTK from May 2013 to June 2018. During his tenure there, Intel stock delivered a total return of more than 140%, outperforming the S&P 500 by more than 50%.
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In the company’s earnings call, Krzanich points out that artificial intelligence and large language models have not been central to its products in the past. He said the plan is to build these elements into every product in the company’s portfolio in the future. However, this transition is already happening. In fiscal 2024, Gen-AI’s solutions achieved 10 customer wins and six program launches.
A particularly exciting technology for Cerence is the new CaLLM Edge model. It was developed in collaboration with Microsoft. NASDAQ: MSFT. It uses a vehicle-specific data set, making it ideal for vehicle communications. Navigation, conversational interaction, and explicit driving commands are all core capabilities. This allows users to adjust the cabin temperature and seat position. They may also ask questions such as “What is the most popular movie ever made in Hollywood?” using your voice.
CaLLM Edge uses two language models. One is simpler and can solve certain issues when the car is not connected to the Internet. The larger model can answer more complex questions when the car is connected to the network. This allows users to always have access to a certain level of AI command capabilities. Automakers can choose one or both models for their vehicle. This is attractive because it allows them to provide a range of options depending on the quality of the vehicle. For example, entry-level cars may only have a small model, while premium cars may have both.
A look at Cerence and final thoughts
The company expects revenue to decline by 1% in 2025. This does not include the 2024 down payment on a large expiring contract. The company is moving to a subscription model for its new products. The company will recognize revenue over a longer period, which will likely result in lower revenue in the short term.
Cerence stock forecast today
$8.16
Growth potential 26.35%Hold
Based on 8 analyst ratings
| High forecast | $23.00 |
|---|---|
| Average forecast | $8.16 |
| Low forecast | $3.00 |
Cerence Stock Forecast Details
One legitimate concern about Cerence is its debt position. The company has $90 million in debt due in 2025, with only $130 million in cash and cash equivalents on its balance sheet. Considering the company only plans to generate $37 million in revenue from its operations in 2025, that doesn’t give it much money to play with.
Overall, Sorens is an interesting name to keep an eye on. Its new products such as CaLLM Edge seem interesting, but they are still in the early stages of generating significant revenue. The company’s penetration rate in global automobile production is 52%, highlighting its strong presence in the industry. This large customer base gives Cerence significant opportunity to expand adoption of its new AI solutions.
After seeing better than expected growth results from these new products, I might get excited about the name. This is especially true considering it is currently valued at around 10% of SoundHound AI’s market capitalization. This is despite the fact that the company’s annual revenue has approximately quadrupled. However, the fact that SoundHound is targeting a much wider potential market is a big reason for this.
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