Cerence CRNC shares have returned 19.1% in the past month, outperforming the broader Zacks Computer and Technology sector’s appreciation of 3.6% and the Zacks Computers - IT Services industry’s return of 3.4%. 

The outperformance can be attributed to CRNC’s good position in generative AI (GenAI), an expanding clientele, and a strong partner network. Cerence’s strong portfolio and growing global presence in the automotive industry, all supported by a solid network of partners, have been key catalysts.

CRNC’s innovative product portfolio helps in expanding its clientele that includes Volkswagen, Audi, Seat, and BMW Group, among others. Its rich partner base that includes NVIDIA NVDA and Microsoft MSFT strengthens its presence in the automotive industry.

One-Month Performance

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CRNC’s Expanding Auto Clientele Boosts Prospects

Cerence’s prospects ride on an expanding automotive clientele. In the third quarter of fiscal 2024, CRNC secured eight new OEM design wins, including partnerships with major automakers which showcased the growing adoption of its AI-powered solutions.

It also saw a significant increase in the number of cars equipped with Cerence’s technology, with the usage of connected services rising 19% over the trailing 12-month period.

In June, CRNC announced that Audi, part of the Volkswagen Group, will deploy its GenAI, Cerence Chat Pro, to enhance in-car assistant capabilities in Audi vehicles equipped with the MIB 3 infotainment platform and future models.

Its collaboration with Skoda, a well-known Volkswagen brand, is noteworthy as the deal aims to enhance the driving experience by integrating Cerence Chat Pro with Skoda’s in-car voice assistant, Laura. 

Skoda drivers and passengers can interact conversationally with their in-car assistant powered by Cerence Chat Pro. This integration offers accurate responses to queries and simplifies navigation, enabling drivers to quickly and safely access essential features.

Rich Partner Base Aids CRNC’s Top-Line Growth

Cerence’s collaboration with Smart aims at developing AI-powered solutions for enhanced in-car experiences in Concept #5, leveraging GenAI to create intuitive, voice-controlled features for Smart’s next-generation vehicles.

The introduction of the Cerence Automotive Large Language Model (CaLLM), powered by NVIDIA, transforms in-car computing platforms by tackling automaker challenges and enhancing user experiences through advanced generative AI capabilities.

CRNC’s collaboration with Microsoft further amplifies its technological edge by integrating OpenAI’s ChatGPT model into vehicles via Microsoft Azure. This integration aims to enhance in-car user experiences by combining Cerence’s automotive technology with Microsoft’s cloud capabilities.

Tuya TUYA recently announced a partnership with Cerence to provide multi-lingual text-to-speech for its cloud developer platform designed specifically for two-wheeled vehicles, including motorcycles, e-bikes, and more.

CRNC Offers Solid FY24 Top-Line Growth Guidance

For fiscal 2024, Cerence expects revenues between $321 million and $327 million, including an estimated $30 million in fixed contracts. 

Adjusted EBITDA is expected between $64 million and $70 million for fiscal 2024.

For the fourth quarter of fiscal 2024, CRNC expects revenues between $44 million and $50 million.

CRNC’s Earnings Estimates Show Mix Trend

The Zacks Consensus Estimate for fourth-quarter fiscal 2024 loss is currently pegged at 32 cents per share, unchanged over the past 30 days.

The consensus mark for fourth-quarter fiscal 2024 revenues is currently pegged at $48.14 million, indicating a decline of 40.39% over the figure reported in the year-ago quarter. 
 

The consensus mark for earnings is pegged at 92 cents per share, which has been unchanged over the past 30 days. CRNC reported earnings of 36 cents in fiscal 2023.

The Zacks Consensus Estimate for fiscal 2024 revenues is pegged at $324.83 million, indicating 10.31% growth year over year.

CRNC Shares are Overvalued

Cerence shares are overvalued, as suggested by the Value Score of C.

CRNC shares are trading below the 200-day moving average, indicating a bearish trend.

CRNC Shares Trade Below 200-day SMA

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Conclusion

CRNC’s shares have been suffering from intense competition across the automotive voice assistance domain. Its stretched valuation is a concern despite a growing partner base and an expanding clientele. 

Cerence currently has a Zacks Rank #3 (Hold), suggesting that it may be wise to wait for a more favorable entry point to accumulate the stock.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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