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Little-known company Cerence AI (CRNC) is a big mover on Friday, with shares up nearly 110% in intraday trading on Jan. 3. The reason is that this small player in the artificial intelligence (AI) market just nabbed a big contract with Nvidia (NVDA).
With experts quick to draw comparisons between Cerence and investor favorite SoundHound AI (SOUN), let’s dive into the latest news and see if CRNC stock is a buy, sell, or hold here.
About Cerence AI Stock
Valued at a market capitalization of roughly $340 million, Cerence AI is a Massachusetts-based company that provides conversational and generative AI solutions. One of its main products is a large language model, CaLLM, designed to facilitate interactions between drivers and their vehicles. Drivers can use it to control vehicle settings such as the temperature and seat positions, and also converse with its general-knowledge chatbot.
CRNC stock is down about 7% over the past 52 weeks, underperforming the 25% gain from the S&P 500 Index ($SPX). However, the last five trading days have brought a gain of 100% and shares are up nearly 600% over the past three months.
Revenue Drops, Losses Widen in Q4
Coming into its fiscal fourth quarter, Cerence has been navigating a restructuring and investor criticism. It announced a transformation plan to cut costs earlier in the year and laid off over 1,000 employees in Q2. In October, the company announced that it was bringing on former Intel (INTC) CEO Brian Krzanich to lead the company.
This move elicited criticism from investors and others in the tech company who pointed out that Krzanich’s tenure at Intel was marked by market share losses, declining stock performance, and controversial product demos.
In the fourth quarter, Cerence reported a drop in revenue from $80.8 million in 2023 to $54.8 million in 2024. Its gross margin fell from 71.5% to 63.7%, and its net loss widened dramatically from $11.6 million to $20.4 million. The company is forecasting a sequential drop in revenue to $48.5 million in its fiscal first quarter as well as a further widening of losses to $24.5 million at the midpoint.
However, the company did say that it is on track to realize annualized cost savings between $35 million and $40 million from its transformation plan. It also announced that it hit a record high of 22 platform launches in fiscal 2024, including six platform launches for generative AI solutions.
Nvidia Deal Boosts CRNC Stock
Driving the huge move on Friday, Jan. 3 is news from Cerence that it will partner with Nvidia on its automotive solutions. The company said specifically that it will use Nvidia tools to help develop its large language model for the automotive industry and incorporate those tools in its existing CaLLM solution.
“By optimizing the performance of our CaLLM family of language models, we are delivering cost savings and improved performance to our automaker customers, who are running quickly to deploy generative AI-powered solutions to their drivers,” Cerence Executive Vice President Nils Schanz said in a news release.
Rival SOUN stock also is up over 7% Friday on the news.
The Bottom Line on Cerence
Despite the enthusiasm on Jan. 3, Wall Street is cautious on Cerence. Analysts have a consensus “Hold” rating and a mean price target of $5.12 that shares have far surpassed. Investors are likely better off waiting on the sidelines to see how Cerence delivers on its transformation strategy.
