Key Points
- Cadence raised its annual profit midpoint forecast to $5.90 per share, up from $5.87.
- Demand for Cadence’s chip design software is surging due to the AI boom, boosting its stock by 6.4%.
- The company reported a 20% revenue increase to $1.22 billion in Q3, surpassing estimates.
- New Palladium supercomputer sales are expected to contribute significantly in Q4.
Cadence Design Systems (CDNS.O) raised its annual profit forecast on Monday, reflecting its optimism about the booming demand for generative AI and advanced chip design tools. This forecast update lifted the company’s stock by 6.4% in after-hours trading. As AI technology becomes a major growth sector, Cadence’s specialized software, crucial for designing intricate semiconductor architectures, is seeing surging demand from major companies like Nvidia and Apple.
The company has increased the midpoint of its adjusted profit outlook 2024 to $5.90 per share, slightly up from a previous estimate of $5.87 per share. Cadence’s offerings include software that automates the complex chip design process and supports the placement of billions of transistors to enable the rapid development of high-performance semiconductors. These chips are the processing backbone for AI-driven applications, positioning Cadence at the forefront of a new wave of semiconductor innovation fueled by the AI market’s exponential growth.
Cadence posted a revenue increase of nearly 20% to $1.22 billion for the third quarter, marking its most significant quarterly rise in the past six quarters and surpassing analysts’ expectations of $1.18 billion, according to LSEG data. The company attributes this growth partly to its latest Palladium supercomputer, which senior vice president Nimish Modi noted in April was expected to begin generating sales in Q3, with an anticipated uptick in Q4.
The revenue boost aligns with the trend of increasing R&D spending within the semiconductor industry, which has maintained stability despite global economic pressures. Analysts at Berenberg observed in early October that Cadence’s revenue growth correlates closely with semiconductor firms’ investment in research and development, a trend that has continued to accelerate.
Cadence has also narrowed its projected earnings range for the full year, now expecting adjusted earnings between $5.87 and $5.93 per share, compared to its prior range of $5.77 to $5.97 per share. Additionally, the company adjusted its 2024 revenue forecast to $4.61 billion to $4.65 billion, slightly refining the previous estimate of $4.60 billion to $4.66 billion.
With AI’s rapid expansion driving demand for efficient and high-performance chips, Cadence’s role in providing advanced design tools puts it in a strong position. As AI continues to reshape industries, Cadence’s tools are expected to become even more integral in the semiconductor space.
