What’s behind its 155% post-rally rally?

Serence NASDAQ: CRNC There is one AI stock Which has recently come on the radar of many investors. Since its latest earnings release on November 21, shares have gained 155% through the close on November 25. So, what does this company do, and why am I mentioning it in the same breath as being praised SoundHound AI NASDAQ: SOUN? I’ll answer those questions, as well as provide my overall view of the stock.

Cerence: AI automotive assistant competes with SoundHound AI

Cerence creates AI virtual assistants with a specific focus on the automobile market. Its solution aims to provide the power of communication between vehicles, drivers and other passengers. In this market, it is a clear competitor of SoundHound AI. SoundHound’s voice recognition platform also targets the automotive market. However, SoundHound also competes in several other markets, including quick-service restaurants and customer service centers.

Cerence has a wide range of automotive customers, including original equipment manufacturers (OEMs). Ford Motor NYSE: F, Geely Automobile OTCMKTS: GELYY, General Motors NYSE: GMAnd many other big names.

Serens spark investor optimism on changes and new products

Serens’ stock rose after earnings as the company beat expectations on both revenue and earnings. Revenue came in 15% above expectations, while its adjusted loss was $0.38 per share versus $0.07 per share.

Serens’ new CEO, Brian Krzanich, is fueling optimism. He had been in the same position earlier Intel NASDAQ: INTC From May 2013 to June 2018. During his time there, Intel stock delivered a total return of more than 140%, outperforming the S&P 500 by more than 50%.

In the company’s earnings call, Krzanich points out that AI and large language models have not been central to its products in the past. He said that the vision going forward is to include these elements in every product in the company’s portfolio. However, this change is already happening. The company’s general-AI solutions have won 10 clients and launched six programs in fiscal 2024.

A particularly interesting technology for Cerence is its New CaLLM Edge Model. was prepared in collaboration with Microsoft NASDAQ: MSFT. It uses an automotive-specific data set, making it ideal for communicating with one’s vehicle. Navigation, conversational interaction, and clear car control commands are all key capabilities. It lets users adjust cabin temperature and seat position. They can also ask questions like “What is the most famous movie ever shot in Hollywood?” Using your voice.

CaLLM Edge uses two language models. One is simple and can handle some queries when the vehicle is not connected to the internet. A larger model can answer more complex questions when the vehicle is online. This allows users to always have access to some level of AI command capability. Automakers can choose to put one or both models into a vehicle. This is attractive because it allows them to offer a range of capabilities depending on the quality of the vehicle. For example, entry-level vehicles may have only the smaller models, while premium vehicles have both.

Perspectives on Serenity and Final Thoughts

The company hopes that a 1% decline in income to 2025. This does not include the next payment in 2024 for a large expiring contract. The company is switching to a more subscription-based model for its new products. This will recognize revenue over the long term, which will likely reduce revenue in the short term.

A legitimate concern with Serens is its debt situation. The firm has $90 million in debt due in 2025, with only $130 million in cash and equivalents on its balance sheet. With that projected to generate $37 million in cash from operations in 2025 alone, that doesn’t leave much money to play with.

Overall, Serens is an interesting name to watch. Its new products, such as CaLLM Edge, look interesting but are still in the early stages of generating significant revenue. The company has a 52% penetration rate in global auto production, highlighting its strong industry presence. This broad customer base provides Serens with significant opportunities to expand adoption of its new AI-powered solutions.

Seeing better-than-expected growth results in these new products could make this a name I’d be excited about. That’s especially true given that it’s currently worth about 10% of SoundHound AI’s market capitalization. This is despite nearly four times the annual revenue. However, the fact that Soundhound is targeting a very large potential market is a big reason for this.

Before considering Serens, you may want to hear this.

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