The surging demand for complex integrated circuits (ICs), technologically advanced consumer electronics, and the growing adoption of connected devices are the main factors driving the growth of the electronic design automation market. The electronic design automation market revenue is anticipated to reach $18.1 billion by 2026, registering a CAGR of 7.7%.
In addition, the miniaturization of chips and devices is anticipated to bode well for the EDA market, despite the ongoing semiconductor chip shortage. Moreover, increasing automobile automation and the rapid growth of connected devices are expected to bolster the demand for advanced semiconductor devices, thereby increasing the growth of the electronic design tools market.
Given this backdrop, we think it could be prudent to invest in fundamentally sound EDA stocks Synopsys, Inc. (SNPS) and Cadence Design Systems, Inc. (CDNS).
Synopsys, Inc. (SNPS)
Headquartered in Mountain View, California, SNPS offers electronic design automation software products used to design and test integrated circuits. The company offers Fusion Design Platform, Verification Continuum Platform, and FPGA design products that are programmed to perform specific functions.
Recently, SNPS announced the expansion of its EDA data analytics portfolio with the introduction of Synopsys DesignDash design optimization solution. As a complementary product to SNPS' market-leading Digital Design Family and SNPS DSO.ai, the award-winning AI-driven design-space-optimization solution, SNPS DesignDash is a comprehensive data-visibility and machine intelligence-guided design optimization solution that allows unmatched productivity in advanced SoC design. The SNPS DesignDash solution delivers a real-time, unified, 360-degree view of all design activities for faster decision making, a deeper understanding of run-to-run, design-to-design, and project-to-project trends, and enhanced collaboration in the SoC development process.
For the second quarter ending April 30, 2022, SNPS' total revenue increased 24.9% year-over-year to $1.28 billion. Its operating income improved 87.3% from its year-ago value to $363.70 million, while its Non-GAAP net income amounted to $390.84 million, up 46.3% from its prior-year quarter. The company's Non-GAAP EPS grew 47.1% year-over-year to $2.50.
The $2.00 consensus EPS estimate represents a 10.6% improvement year-over-year for the third quarter ending July 2022. Analysts expect SNPS' revenue to increase 15.1% year-over-year to $1.22 billion for the third quarter ending July 2022. Moreover, the company has an impressive earnings surprise history, surpassing the consensus EPS estimates in all of the trailing four quarters. The stock has gained 26.6% over the past year.
SNPS' POWR Ratings reflect this promising outlook. The company has an overall B rating, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
The stock also has an A grade for Quality and a B grade for Growth and Sentiment. Within the F-rated Software - Application industry, it is ranked #13 of 156 stocks.
To see additional POWR Ratings for Value, Momentum, and Stability for SNPS, click here.
Cadence Design Systems, Inc. (CDNS)
CDNS offers software, hardware, services, and reusable integrated circuit (IC) design blocks worldwide. The company renders functional verification services, including emulation and prototyping hardware. Its functional verification offering consists of JasperGold, a formal verification platform; Xcelium, a parallel logic simulation platform; Palladium, an enterprise emulation platform; and Protium, a prototyping platform for chip verification.
Recently, CDNS announced the new Cadence OnCloud SaaS and e-commerce platform powered by Amazon Web Services (AWS) for companies adopting a "cloud-first" approach for design and analysis solutions that can be accessed anywhere from any device. The CDNS OnCloud SaaS and e-commerce platform is an industry first, providing companies instant access to purchase and utilize design and analysis products anywhere and from any device.
Also recently, CDNS announced the Cadence Optimality Intelligent System Explorer, which allows the realization of multi-disciplinary analysis and optimization (MDAO) of electronic systems. After revolutionizing simulation and delivering various products with advanced performance and accuracy, CDNS has emphasized optimization, first introducing the disruptive Cadence Cerebrus Intelligent Chip Explorer and now Optimality Explorer.
During the first quarter ending April 2, 2022, CDNS' total revenue increased 22.5% year-over-year to $901.77 million. Its income from operations improved 56.4% from its year-ago value to $318.93 million, while its Non-GAAP net income amounted to $323.62 million, up 40% from its prior-year quarter. The company's Non-GAAP EPS grew 41% year-over-year to $1.17.
Analysts expect CDNS' revenue to increase 14.7% year-over-year to $835.42 million for the second quarter ending June 2022. The consensus EPS estimate of $0.97 represents a 12.6% improvement year-over-year for the second quarter ending June 2022. Moreover, it has an impressive earnings surprise history, as it surpassed the consensus EPS estimates in all of the trailing four quarters. The stock has gained 27.7% over the past year and 9.7% over the past three months.
CDNS' strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our POWR Ratings system. The stock also has an A grade for Quality and a B grade for Growth and Sentiment. Within the Software - Application industry, it is ranked #27.
In total, we rate CDNS on eight different levels. Beyond what we've stated above, we have also given CDNS grades for Value, Momentum, and Stability. Get all the CDNS ratings here.
SNPS shares . Year-to-date, SNPS has declined -13.95%, versus a -15.22% rise in the benchmark S&P 500 index during the same period.
About the Author: Spandan Khandelwal
Spandan's is a financial journalist and investment analyst focused on the stock market. With her ability to interpret financial data, she aims to help investors evaluate the fundamentals of a company before investing.
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