Cadence Design Systems shares tumbled Tuesday after the maker of electronic design automation software gave weak guidance for the current quarter. CDNS stock plunged through a key support level on the news.
The San Jose, Calif.-based company late Monday said it earned an adjusted $1.29 a share on sales of $1.02 billion in the March quarter. Analysts polled by FactSet had expected earnings of $1.26 a share on sales of $1.01 billion. On a year-over-year basis, Cadence earnings rose 10% while sales increased 13%.
However, for the current quarter, Cadence predicted adjusted earnings of $1.17 a share on sales of $970 million. That's based on the midpoint of its guidance. Analysts had been predicting earnings of $1.25 a share on sales of $1.01 billion for the second quarter.
For the full year, Cadence expects to earn an adjusted $5 a share on sales of $4.05 billion, based on the midpoint of its outlook. Wall Street was projecting earnings of $4.98 a share on sales of $4.04 billion for 2023.
CDNS Stock Sinks After Earnings Report
In morning trades on the stock market today, CDNS stock dropped as much as 8.9% to 194.05. With the move lower, CDNS stock cut below its 50-day moving average line, a critical support level.
However, it clawed its way back above the 50-day line by the end of the regular session. CDNS stock closed down 4.3% to 203.90.
"Cadence delivered strong results for the first quarter, driven by our consistent execution and continued momentum in the core EDA and System Design & Analysis businesses," Chief Executive Anirudh Devgan said in a news release.
He added, "With the recent introductions of Virtuoso Studio and Allegro X AI, we now have an unmatched 'chip to package to board to systems' generative AI portfolio underpinned by our differentiated JedAI platform and delivering unprecedented quality of results and productivity benefits."
KeyBanc Capital Markets analyst Jason Celino reiterated his overweight, or buy, rating on CDNS stock after the report. He also upped his price target to 235 from 225.
"We continue to view CDNS as a core holding, and would use any pullback as a buying opportunity," Celino said in a note to clients. Cadence's guidance looks conservative, he said.
Cadence Sees Sales Boost From AI
Cadence is likely to benefit from the boom in artificial intelligence projects, Baird analyst Joe Vruwink said in a recent note to clients.
"The application of AI in EDA (electronic design automation) is the 'real deal,' and Cadence is well positioned to benefit across multiple aspects of business," Vruwink said. He rates CDNS stock as outperform with a price target of 215.
Cadence is on four IBD stock lists. Cadence is on the IBD 50, Big Cap 20, Tech Leaders and Long-Term Leaders stock lists.
On Feb. 14, CDNS stock broke out of a cup base at a buy point of 195.07, according to IBD MarketSmith charts. The breakout occurred after the company's better-than-expected fourth-quarter report.
Follow Patrick Seitz on Twitter at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.
