Cerence CRNC: Gaining Ground in the Automotive AI Sector
Cerence CRNC shares have surged 19.1% over the last month, significantly outperforming the broader Zacks Computer and Technology sector’s growth of 3.6% and the Zacks Computers – IT Services industry, which saw a return of 3.4%.
This success can be linked to CRNC’s strong positioning in generative AI (GenAI), an expanding set of clients, and a robust network of partners. Their impressive portfolio and growing influence in the automotive field, supported by strategic partnerships, have fueled this growth.
CRNC’s innovative offerings have attracted a range of clients, including major automakers like Volkswagen, Audi, Seat, and BMW Group. Additionally, collaborations with companies such as NVIDIA NVDA and Microsoft MSFT have fortified its standing in the auto industry.
Monthly Performance Highlights
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CRNC’s Expanding Automotive Client Base Shapes Future Growth
CRNC’s future prospects are bright, thanks to an expanding automotive clientele. In the third quarter of fiscal 2024, the company landed eight new OEM design wins, indicating increased acceptance of its AI-driven solutions among key automakers.
There was also a notable rise in the number of vehicles featuring Cerence’s technology, with connected services usage jumping 19% over the past year.
In June, CRNC partnered with Audi, a member of the Volkswagen Group, to implement its GenAI, Cerence Chat Pro, enhancing in-car assistant capabilities for Audi vehicles equipped with the MIB 3 infotainment platform and future models.
Another important collaboration with Skoda, another Volkswagen brand, aims to improve the driving experience by integrating Cerence Chat Pro with Skoda’s voice assistant, Laura. This setup allows drivers and passengers to interact conversationally with their in-car assistant, providing accurate answers and streamlined navigation.
Strong Partnerships Drive CRNC’s Revenue Growth
Cerence’s partnership with Smart is focused on developing AI-enhanced solutions for vehicles, leveraging GenAI to create intuitive, voice-controlled features for future models.
The introduction of the Cerence Automotive Large Language Model (CaLLM), powered by NVIDIA, aims to revolutionize in-car computing by addressing challenges faced by automakers and improving user experiences with advanced generative AI capabilities.
Furthermore, CRNC’s collaboration with Microsoft amplifies its technological advantages by integrating OpenAI’s ChatGPT into vehicles through Microsoft Azure, enhancing user experiences by combining Cerence’s automotive technologies with Microsoft’s cloud services.
Tuya TUYA has also announced a partnership with Cerence to deliver multilingual text-to-speech capabilities for its cloud developer platform aimed at two-wheeled vehicles, such as motorcycles and e-bikes.
Optimistic Revenue Outlook for FY24
For fiscal 2024, Cerence forecasts revenues between $321 million and $327 million, including an anticipated $30 million from fixed contracts.
The company expects adjusted EBITDA to be between $64 million and $70 million for that fiscal year. For the fourth quarter of fiscal 2024, CRNC anticipates revenues in the range of $44 million to $50 million.
Earnings Estimates Show Variability
The Zacks Consensus Estimate for the fourth-quarter fiscal 2024 loss is currently held at 32 cents per share, remaining unchanged over the past month.
Meanwhile, expectations for fourth-quarter revenues stand at $48.14 million, reflecting a decline of 40.39% compared to the same period last year.
Cerence Inc. Price and Consensus
Cerence Inc. price-consensus-chart | Cerence Inc. Quote
The consensus estimate for earnings rests at 92 cents per share, which has also remained steady over the past month. CRNC’s earnings were 36 cents in fiscal 2023.
The Zacks Consensus Estimate for fiscal 2024 revenues is now at $324.83 million, which indicates a projected growth of 10.31% year over year.
Currently, Cerence shares appear overvalued, as indicated by a Value Score of C. The stocks are trading below the 200-day moving average, signaling a bearish outlook.
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Conclusion on Cerence
Despite Cerence’s expanding partnerships and clientele, intense competition in the automotive voice assistance sector poses challenges. Additionally, valuation concerns continue to linger. Currently, Cerence holds a Zacks Rank #3 (Hold), suggesting it may be prudent to await a more favorable entry point for potential investment.
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