Technological advancements in semiconductors will fuel continued strong demand for chip design tools from market leaders Cadence Design Systems and Synopsys for years to come, a Deutsche Bank analyst said this week. He initiated coverage of CDNS stock and SNPS stock with buy ratings.
Cadence and Synopsys together hold about two-thirds of the market for electronic design automation software, Deutsche Bank analyst Gianmarco Conti said in a note to clients Thursday. Also, they are the second- and third-largest vendors in another realm, the semiconductor intellectual property market, he said. The market leader in semiconductor IP is privately held Arm.
"We view the EDA and IP space as highly attractive for investors," Conti said.
CDNS stock and SNPS stock will benefit from high demand for tools to design chips for applications such as Internet of Things, 5G wireless, electric vehicles, autonomous vehicles and data centers, he said.
CDNS Stock, SNPS Stock Both Tech Leaders
Conti set a price target of 200 on CDNS stock and 420 on SNPS stock.
On the stock market today, CDNS stock slipped 0.8% to close at 163.43. SNPS stock retreated 1.2% to 305.51 on Friday.
Conti is forecasting compound annual growth rates in revenue from 2022 through 2025 of 11% for Cadence and 13% from Synopsys. Over the same period, he sees 14% growth in adjusted earnings for Cadence and 18% growth for Synopsys. Those targets are above analyst estimates.
CDNS stock and SNPS stock are both on IBD's Tech Leaders list. Also, CDNS stock is on the IBD 50 list of top-performing growth issues.
Cadence Ranks First In Industry Group
Cadence has opportunities to gain business from chipmaker Intel, where it is currently underexposed, Conti said. For instance, Intel has suffered product delays in part from its use of proprietary software tools, such as for design validation, he said. And Cadence has a strong product portfolio in that area.
The IBD Stock Checkup tool ranks CDNS stock as first out of 12 stocks in IBD's Computer Software-Design industry group. CDNS stock has an IBD Composite Rating of 97 out of 99. SNPS stock ranks third in the group with a Composite Rating of 91.
IBD's Composite Rating is a blend of key fundamental and technical metrics to help investors gauge a stock's strengths. The best growth stocks have a Composite Rating of 90 or better.
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