According to Bank of America, Cadence Design Systems is far ahead of its AI peers in delivering stable returns. The electronic systems design company is a “high-quality growth compound” that “fully leverages artificial intelligence,” analyst Vivek Arya said in a note to clients on Wednesday. Cadence develops software, hardware and intellectual property used to design chips and printed circuit boards and other related products. Arya reiterated a Buy rating on the company and raised its price target by $20 to $350, implying potential upside of nearly 20% next year. Shares are up nearly 6% this year. Arya’s price target is bullish as the company is expected to accelerate growth in the second half of this year and into 2025 on renewed bookings momentum. He noted that the stock has the potential to recoup its historical premium over PHLX Semiconductor Industries (SOX). “Like most long-term compound investors, the true value of CDNS tends to be more easily felt when the market becomes defensive,” Arya said in a note to clients on Wednesday. “Over the past decade, CDNS has Achieving an annualized return of 33%, outperforming rival SNPS by 300 basis points, ranking it in the top 5 in our coverage, and well ahead of the SOX Index’s 25% gain. Importantly, CDNS stock performed at 18. outperformed the SOX index. Arya said the company has “best-in-class profitability and opportunities” to gain market share, with a clear focus on organic growth and avoiding large-scale mergers and acquisitions. Artificial intelligence should also drive share growth, Arya said, and Cadence is expected to achieve long-term double-digit sustainable growth in three phases related to emerging technologies: complex chip design, incremental feature monetization and expansion into new markets. He said that although the company’s sales have not grown as much as data center and artificial intelligence sales from its main customers Nvidia, AMD and Samsung, management expects that as artificial intelligence capabilities are used in new industries such as biology and automobiles, is adopted, the company’s growth will enter a more sustainable phase. Arya expects Cadence’s chip and systems expertise to benefit from building AI data centers over the next three to five years.
