According to Clare Pleydell-Bouverie, fund manager at Liontrust, Cadence Design Systems, a US company that provides electronic design software to chipmakers, has been “completely lost” by investors. The tech investor explained that Cadence is part of a rare duopoly with just one competitor, Synopsys. Liontrust’s Global Technology Fund, with $265 million in assets, is invested in both stocks with about a 3.3% allocation to each as of April 30. “We rarely keep competitors side by side,” she told CNBC’s Arabile Gumede at the latest Pro Talks. “But because this is a kind of functional duopoly, it guarantees that.” Cadence recently announced, alongside its quarterly earnings, new tools that could help chipmakers, such as TSMC, GlobalFoundries and Global Unichip, run their manufacturing processes more efficiently. In April, Cadence launched its Protium X3 system, a tool for engineers to find and fix problems in the design of computer chips before they are manufactured. In addition, the company also launched its Palladium Z3 system, which is expected to emulate the software that will run on the chips before they are manufactured. The company says the systems are designed to work together and reduce the cost of chip design and testing. “We think the market has really underestimated this,” Pleydell-Bouverie said. Cadence shares are up 5.12% this year and are up 25% over the past 12 months — though that growth is much more muted than many other chip-related stocks. “When we think about the long term, we think about what this step and product innovation from Cadence will accomplish if we’re going to see chips five times the size of Blackwell come to market,” she said, referring to Nvidia’s latest and most powerful AI chip. “Cadence is going to be the main enabler of that, and that’s been completely missing from the market.” Pleydell-Bouverie also noted that Cadence benefits from a “dual engine of growth” — companies designing more chips to bring AI capabilities to consumers, and Cadence using AI to improve its own chip design process and efficiency. Cadence already boasts gross margins of nearly 90%. Over the past decade, the company’s pretax net profit margin has also grown steadily to more than 30%, according to FactSet data. Pleydell-Bouverie also indicated that about 80-85% of Cadence’s revenue is recurring, making it a “mission critical component” of the semiconductor design process. Cadence shares fell after first-quarter earnings. It revealed that revenue fell to $1.01 billion compared to $1.02 billion a year earlier. Additionally, the company tempered Wall Street’s forward-looking estimates, saying it expects second-quarter revenue to be between $1.03 billion and $1.05 billion. Analysts remain generally positive on the stock, however, with 67% rating it a buy and 28% maintaining a hold rating. The average price target of $322 implies a 12.5% upside from the stock’s current price, according to FactSet data.
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