Cadence Design Systems, Inc. CDNS has been scaling higher for quite some time now. Shares of Cadence have returned 53.6% year to date, outperforming the industry’s rally of 26.8%. The stock has also fared better than the S&P 500 Index’s growth of 13.8%.
The upside can be attributed to the company's evolving silicon-based design strategy, which strives to meet complex computing demands of 5G and AI applications.
Year-to-date Price Performance
Increasing digital transformation across aerospace, automotive and medical domains is fueling demand for robust computational software and developer tools, which enhances the company’s growth prospects.
Key Growth Drivers
Strength in Portfolio Favors Robust Adoption
Cadence has carved a new System Analysis Group to focus exclusively on system analysis and design, with an aim to expand its total addressable market or TAM.
Notably, the company is banking on robust adoption of Clarity 3D Solver, marking its foray into the 3D modeling software market. The fact that Clarity 3D Solver can be integrated with Cadence’s implementation platforms to enhance performance provides leverage to its 3D modeling goals.
Recently, Innovium, engaged in providing data center Ethernet switching silicon solutions, selected Cadence Innovus Implementation System.
Further, Cadence’s Tensilica offerings are being utilized in Microsoft’s MSFT latest mixed-reality (MR) headsets, HoloLens 2. Cadence Tensilica Vision P6 DSPs have also been selected by Toshiba to accelerate development of advanced automotive SoCs.
Management is optimistic about Protium X1, loaded with robust debug capabilities, aimed at enabling software developers to design advanced 5G and AI chips.
The expansion of Cadence Verification Suite with the latest prototyping platform is anticipated to provide the company a competitive edge against Synopsys SNPS in the Electronic Design Automation (EDA) market. In fact, chip-making giant NVIDIA NVDA is implementing Protium X1, which is a noteworthy win.
Markedly, Cadence’s CloudBurst Platform, which offers access to the company’s design tools in hybrid cloud infrastructure, is being utilized by Barefoot Networks.
Moreover, Cadence’s flagship enterprise emulation verification platform — Palladium Z1 — has also been deployed by Acacia Communications, Inc. to design advanced DSP (or digital signal processor) ASICs.
Furthermore, management is elated with growing clout of the company’s innovative cloud-ready solutions. Cadence is anticipated to benefit considerably from latest customer wins and product roll outs in strategic growth markets, consequently, favoring its top line.
Other Noteworthy Developments Hold Promise
In the recent past, Cadence announced that its analog/mixed-signal (AMS) IC design flow secured certification for United Microelectronics Corporation (UMC) 28HPC+ process technology.
The company’s association with Northrop Grumman, which is utilizing the company’s IP and EDA solutions, is noteworthy. We believe the deal will aid the company enhance presence in aerospace and defense end market.
Moreover, Cadence formed an alliance with Green Hills Software, in a bid to explore embedded system security and safety end-market, which is estimated around $3 billion.
Positive Surprise History
Cadence has an impressive earnings surprise history. The company outpaced the Zacks Consensus Estimate in the trailing four quarters, with a positive average earnings surprise of 10.85%. Notably, long-term expected EPS growth rate for Cadence is currently pegged at 10%.
Cadence is experiencing strong demand for its software — particularly verification and digital design products — from customers providing datacenter servers, networking products and smartphones that continues to invest in new design concepts and projects.
Further, increasing investments on emerging trends like IoT, AR/VR and autonomous vehicle sub-systems present significant growth opportunity.
The aforementioned strong fundamentals are infusing confidence in the stock. Currently, Cadence carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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