Saturday, October 31, 2020

Why Cerence (CRNC) is one of my favorite investments.

 Cerence ticks all the boxes for a great investment:

- It has a strong defensible moat as it sells it's AI Virtual Assistant technology for connected cars to: BMW, Daimler (Merceds-Benz), Volkswagen, Fiat Chrysler, Ford, General Motors and Toyota.

- This 'Car Virtual Assistant' technology is too insignificant for auto manufacturers to copy as this is a small component which isn't a differentiator for the brand.

- I like that the company is 100% focused on the car industry. Cars aren't going anywhere, and virtual assistant technology isn't either.

- In-car voice assistants have already overtaken smart speakers in terms of consumer reach.

- Although the business is super viable today, autonomous driving technology will transform the automotive industry and create new ways for virtual assistants to help out as part of the digital economy.

- Nearly 300 Million cars around the world already use Cerence's AI Tech.

- Cerence was spun off last year from Nuance Communications, a leader in voice communication technology, so although the company is new to the market, the product itself has years of experience baked into it.

- Cerence enjoys a "lock-in" effect. Because they provide white label software to their OEM customers, they are integrated into the customer's technology and not easily replaceable if competition were to come along.

- Signed a contract with Audi Connect in Q1 2020

Cerence is also exploring new areas like gaze and gesture recognition, which will be critical to driver monitoring systems (DMS) that will be increasingly incorporated into advanced driver assistance systems (ADAS) that will serve as stepping stones to full-fledged self-driving cars. 

- With a market cap of under $2B there is plenty of room to run.



  1. don't you fell this competes with Google's assistant and android OS in the car?
    i would assume they are to an extent at the mercy of web-scale giants that all have their eye on the auto industry

  2. I think that in many ways, they are too small for Google to go after. It may also be to Google's determent that they are in fact competing with these manufacturers on self driving vehicles so I doubt Audi would be too thrilled to let Google into their OS.
    It also seems that car assistants require a different logic than home assistants.
    Cerence seem to have found the sweet spot - They are embedded with most large car manufacturers, are big enough to handle the tech challenges but not big enough to draw attention from would-be competitors.