Nuance (NUAN) was an early pioneer in voice recognition technologies and has gone through numerous phases in its evolutionary path, notes Tyler Laundon, editor of Cabot Small-Cap Confidential.
Today, Nuance — which is up 26% so far in 2021 — develops conversational artificial intelligence (AI) solutions that can understand, analyze and respond to human language. It has a market cap of $15.7 billion.
In recent years management has focused on growing within Nuance’s two strongest markets — Healthcare Solutions and Enterprise Solutions — as well as migrating to the cloud, new product development and international expansion.
Looking forward, Nuance is entering the next big phase of its evolution as it prepares to become part of Microsoft (MSFT). Microsoft announced the acquisition back in April. It was attracted to Nuance because the acquisition will help Microsoft build out Microsoft Cloud for Healthcare solutions.
More specifically, Microsoft can leverage existing healthcare integrations and develop new AI capabilities using existing data on Azure. Management sees a doubling of its healthcare addressable market (to $500 billion) by bringing Nuance into the fold.
For investors, news of the buyout was welcome. NUAN was trading near $45.50 prior to the announcement, then shot up over 30% to an all-time high of $54 on the news. The stock recently added a few more points because the deal just passed antitrust approval. NUAN now trades just below $55.
Current NUAN investors should hold their shares only if they wish to own stock in MSFT, which should be a core holding in every investor’s portfolio. For new investors, there is no reason to buy NUAN. It makes more sense simply to buy MSFT directly.
