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Shares in Chip Designers Explode Higher

May 26, 2023

Imagine a technology which is at the heart of innovations that are changing the way people work and play. Self-driving cars. Machines that learn. Lightning-fast communication across billions of devices in the datasphere. These breakthroughs are ushering in the era of Smart Everything―where devices are getting smarter and connected, and security is an integral part of the design.

Powering this new era of innovation are high-performance silicon chips and exponentially growing amounts of software content. A technology which is at the forefront of Smart Everything with the world’s most advanced technologies for chip design, verification, IP integration, and software security and quality testing. Enabling customers to innovate from silicon to software so they can bring amazing new products to life.

These businesses are central to the technology revolution and their shares are responding accordingly.

The business is in fantastic shape

The transition to Smart Everything is well underway and will drive significant long-term growth for semiconductors and outsized contribution for us. Against this backdrop, we planned and are executing accordingly.

Based on continued strong design activity and high confidence in our business, we are raising our full year revenue guidance range to between $5.79bn and $5.83bn. We’re increasing our year-over-year non-GAAP ops margin improvement expectation to 150 basis points, up approximately 0.5 versus prior guidance.

We are raising our full year non-GAAP EPS range to between $10.77 and $10.84. 

Q2 2023, 17 May 2023

Synopsys could not be better positioned for growth.

Simultaneously, the end market hunger for Smart Everything puts huge pressure on increasing performance-per-watt to the limit. And on top of that, security and safety are now becoming mandatory everywhere. Synopsys’ vision and mission of smart, secure and safe thus sets both a high bar and foreshadows great opportunities for our customers and our company.

Users told me, though, that while system complexities are growing exponentially, design resources are not. Design productivity thus requires a catalytic step function change in our approach. To us, this inflection comes from AI. We are embedding AI in everything we do. We have made world class advances in design flow automation and our customers are now adopting synopsis AI on production designs at a remarkable rate.

This is not by accident. 12 years ago, we called out a vision of Smart Everything unleashed by the intersection of big data and machine learning. Since then, we applied ML everywhere on our product offering. In 2017, we decided to harness AI for entire design subflows and began investing in DSO.ai where DSO stands for Design Space Optimization.

We rapidly progressed from prototype to customer validation of AI driven results in 2019, recognized by the ASPENCORE IEEE World Electronics Achievement Award for Innovative Product of the Year in 2020. The following year, at the 2021 HOT CHIPS Conference, we unveiled our pioneering AI journey and roadmap showcased by a slew of remarkable results.

DSO.ai delivered not only better speed and power on large and complex design blocks, but it did so in a fraction of the time meaning month down to weeks, while requiring fewer, less specialized designers. This did not go unnoticed as it had been validated weeks earlier by Samsung, an early partner announcing the world’s first AI driven commercial tapeout with DSO.ai.

By the end of 2022, adoption, including nine of the top ten semiconductor vendors, had moved forward at great speed with 100 AI driven commercial tapeouts. Today, the tally is well over 200 and continues to increase at a very fast clip as the industry broadly adopts AI for design from Synopsys.

But we have not sat still. At SNUG, we unveiled the industry’s first full stack AI driven EDA suite Synopsys.ai Specifically in parallel to second generation advances in DSO.ai, we announced VSO.ai which stands for Verification Space Optimization and TSO.ai, Test Space Optimization.

In addition, we are extending AI across the design stack to include analog design and manufacturing. Partners in the announcement included Nvidia, TSMC, MediaTek, Renesas and IBM Research, all providing stunning use cases of the rapid progress and criticality of Synopsys.ai to deliver their breakthrough results.

Q2 2023, 17 May 2023

The other amazing company in this space is Cadence Design Systems

The company is saying similar things to Synopsys about the exciting things that are happening.

Generative AI design tools are revolutionizing chip and system development by delivering unprecedented optimization and productivity benefits. Customers have already been benefiting from our ground-breaking generative AI solutions in the digital, verification and systems areas, and with the recent introductions of Virtuoso Studio and Allegro X AI, we now have an unmatched chip to package to board to systems generative AI portfolio.

Q1 2023 24 April

Strategy – big guns in AI working closely together

 I want to highlight a breakthrough on the manufacturing front that Nvidia announced at its March GTC conference. Currently lithography is nearing the limits of what physics makes possible. Our collaboration with Nvidia remedies this by running Synopsys OPC, Optical Proximity Correction software on Nvidia’s computational lithography platform named cuLitho. Our collaboration massively reduces compute time from literally weeks to days.

Synopsys, Q2 2023, 17 May 2023

This is increasingly all about AI, which has the potential to ignite huge investor enthusiasm and drive a whole new technology bull market. Both these shares have already featured in alerts this year and are making great progress with much more to come.

AI is obviously going to be huge, especially in this generative version that is creating so much excitement. There are going to be some monster stock market winners, of which these companies could be two. At Quentinvest we will be hunting them down.

Share recommendations

Cadence Design Systems. CDNS. Buy @ $230

Synopsys. SNPS. Buy @ $446

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