We recently compiled a list of the 12 Best Performing Small Cap Stocks So Far in 2025. In this article, we are going to take a look at where Cerence Inc. (NASDAQ:CRNC) stands against the other small cap stocks.
On February 14, Stacey Sears, portfolio manager at Emerald Advisors, joined ‘Squawk Box’ on CNBC to share her insights on the market’s performance in early February. She thinks that small-cap earnings data is encouraging. Despite various news events, which include inflation data and tariff announcements, she thinks that the market has handled the developments well. Michael Hartnett of Bank of America suggests that the recent hot CPI could be a blessing in disguise as it might lead President Trump to adopt more cautious policies regarding tariffs and immigration. But Sears emphasized that her team is not overly concerned about inflation levels at present. They believe that while there has been an uptick in some inflation indicators like PPI elements, these don’t significantly impact Personal Consumption Expenditures (PCE), which is a focus for Fed Chair Jerome Powell.
In terms of positioning within this environment, Sears discussed how small-cap stocks are showing encouraging signs after being in an earnings recession for much of the past two years. The fourth quarter marked a turn with positive year-over-year earnings growth exceeding expectations, tracking at high single digits instead of the anticipated 2% growth. This outperformance spans multiple sectors including financials, healthcare, and technology. She was questioned about small caps being less appealing during periods of high inflation and interest rates due to their volatility compared to larger cap stocks like those in mega-cap indices reaching peak concentration levels. Sears pointed out that small caps are currently undervalued relative to their historical norms within equity markets. She believes structural changes are unlikely and anticipates recovery as domestic economic strength continues with GDP tracking positively according to Atlanta Fed data. Moreover, borrowing costs have decreased recently by about 100 basis points based on secure overnight financing rates (SOFR), which should alleviate some headwinds affecting earnings growth for small caps.
Given these factors combined with favorable valuations today, Sears sees opportunities emerging within small caps.
Methodology
We used the Finviz stock screener to compile a list of the best-performing stocks that were trading between $300 million and $2 billion. We then picked the top 12 stocks with the highest year-to-date gains, as of February 17. The stocks are ranked in ascending order of their year-to-date performance. We have also added the hedge fund sentiment for each stock which was sourced from Insider Monkey’s database.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
A man with an AI powered virtual assistant, demonstrating the coexistence of the two.
Cerence Inc. (NASDAQ:CRNC)
Number of Hedge Fund Holders: 10
Year-to-Date Performance as of February 17: 75.03%
Cerence Inc. (NASDAQ:CRNC) provides AI-powered virtual assistants for the transportation market globally. It offers both edge and cloud-connected software, along with professional services. It specializes in conversational AI solutions like speech recognition and natural language understanding.
The company’s automotive AI segment helped it make a revenue of $50.9 million in FQ1 2025. While this was down 63% from the previous year, it surpassed the high end of its guidance which drove the stock’s surge. It’s securing new design wins and customer programs, which shows market demand for its AI solutions. It achieved six design wins for core products and two GenAI contracts with major automakers, maintaining a strong market presence with a 51% share of worldwide auto production. The launch of CaLLM Edge, which is the first LLM for offline automotive use, also highlights its innovation.
It’s prioritizing cost-efficiency through restructuring and operational improvements. Significant reductions in operating expenses, which amount to $29 million year-over-year through layoffs and office consolidations, resulted in improved gross margins of 65%. This contributed to investor confidence. Cerence Inc. (NASDAQ:CRNC) is confident in its ability to meet its financial goals. This includes maintaining its full-year guidance of $236–247 million in revenue and projecting $20 million of fixed contracts.
Overall CRNC ranks 10th on our list of the best performing small cap stocks so far in 2025. While we acknowledge the growth potential of CRNC as an investment, our conviction lies in the belief that AI stocks hold great promise for delivering high returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than CRNC but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 20 Best AI Stocks To Buy Now and Complete List of 59 AI Companies Under $2 Billion in Market Cap.
Disclosure: None. This article is originally published at Insider Monkey.
