An Introduction
New chip manufacturing foundries will be coming online around the world over the next few years to reduce the dependence on the current few plants (primarily TSM, UMC, GFS and TSEM) in operation and to meet the dramatic growth in the use of chips and they will all have to integrate EDA tools to do so. The total EDA addressable market is anticipated to reach $21.6B by 2028 which represents a compound annual growth rate (CAGR) of 11% between now and then. Before proceeding listen to the MunAiMarkets theme song and get in the mood to join the rich man’s world!
What Is Electronic Design Automation (EDA) Software?
With computer chips now containing more than a hundred billion transistors these days compared to only a few thousand back in the 1970s it’s impossible to create these designs manually like it was done back then so electronic design automation (EDA) software is now used to help electrical engineers design and develop ever more complex chips using this specialized software.
What Are the Market Shares of the Major EDA Companies?
The category is concentrated primarily in the hands of two pure-play providers, Cadence Design Systems (CDNS) and Synopsys (SNPS) with 40% and 30% market share, and Ansys (ANSS) which has about a 6% market share with another 11 companies making up the remaining 24%. Synopsys has announced that it is acquiring ANSS (see here) which will increase its market share to approximately 36% at that time.
How Big is the Total EDA Addressable Market?
According to research by Deloitte, the total EDA addressable market is anticipated to reach $21.6B by 2028 which represents a compound annual growth rate (CAGR) of 11% between now and then.
What are the Major Factors Contributing to EDA’s Expected Growth?
New chip manufacturing foundries will be coming online around the world over the next few years to reduce the dependence on the current few plants (primarily TSM, UMC, GFS and TSEM) in operation and to meet the dramatic growth in the use of chips and they will all have to integrate EDA tools to do so. According to Deloitte, for example, the 12-fold increase in electric vehicle (EV) sales by 2030 will require 2-5x more chips than current combustion engine automobiles.
The Pure-Play Custom Design (EDA) Software Stocks Portfolio
Below are the performances of the 2 pure-play EDA stocks MTD, in descending order, and in 2024, and the reasons for their stock price changes:
- Synopsys (SNPS): UP 8.5% MTD; DOWN 5.7% in 2024
- Reason(s) Behind Price Change:
- Analyst Upgrades: Multiple analysts upgraded their ratings for SNPS. For instance, Redburn Atlantic initiated a “Buy” rating, and Loop Capital also initiated a “Buy” rating with a price target of $675.
- Strong Financial Performance: Synopsys reported impressive fiscal second-quarter results, showcasing a 21% year-over-year revenue increase, which surpassed consensus forecasts.
- Positive Market Sentiment: The overall positive sentiment in the tech sector and the broader market also contributed to the stock’s rise.
- Reason(s) Behind Price Change:
- Cadence Design Systems (CDNS): UP 1.1% MTD; UP 35.1% in 2024
- Reason(s) Behind Price Change:
- Analyst Upgrades: Multiple analysts upgraded their ratings for CDNS. For instance, Redburn Atlantic initiated a “Buy” rating, and Loop Capital also initiated a “Buy” rating with a price target of $360.
- Strong Financial Performance: Cadence Design Systems reported impressive fiscal second-quarter results, showcasing a 21% year-over-year revenue increase, which surpassed consensus forecasts.
- Positive Market Sentiment: The overall positive sentiment in the tech sector and the broader market also contributed to the stock’s rise.
- Reason(s) Behind Price Change:
Portfolio Average: UP 5.9% MTD and UP 6.6% in 2024.
Conclusion
The demand for EDA software is anticipated to maintain robust growth, with double-digit increases expected to continue throughout the decade as the major semiconductor companies begin to require, and acquire, custom-designed chips for their new products. This growth trajectory is likely to be stable, as the demand for EDA software is less susceptible to the fluctuations of economic cycles than semiconductor demand while chip. This makes the EDA software market a strategic investment avenue for those looking to capitalize on the AI chip industry’s expansion.
