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Introduction

 "AI hardware" (aka semiconductors, wafers or computer chips) is comprised of 7 distinct sub-segments (see last Saturday's article here for an overview) of which Electronic Design Automation (EDA) Software is the first of the initial 4 segments - in what is referred to as the semiconductor value chain - involved in the production and distribution of semiconductor devices. There are only 2 companies in this segment involved exclusively (i.e. are pure-play) in the custom design of complex semiconductor chips using sophisticated electronic design automation (EDA) software and MunAiMarkets tracks them in its model Pure-Play Custom Design (EDA) Software Stocks Portfolio.

What Is Electronic Design Automation (EDA) Software?

Electronic Design Automation (EDA) software is a collection of instruments that address different aspects of the chip design process such as: 

• simulation software that predicts circuit behavior,
• design solutions that help create the physical circuit elements, and
• verification systems that ensure the design is correct and manufacturable...

enabling engineers, along with designers, to create advanced semiconductor chips and electronic components with enhanced accuracy and minimal expenditures of time. 

What Is A Semiconductor?

A semiconductor is a material that has an electrical conductivity value falling between that of a conductor, such as copper, and an insulator, such as glass. In many cases their conducting properties are altered by introducing impurities (doping) into the crystal structure and when two differently doped regions exist in the same crystal, a semiconductor junction is created. Connecting the two materials causes creation of a depletion region near the boundary, as the free electrons fill the available holes, which, in turn, allows electric current to pass through the junction only in one direction. and is the basis of diodes, transistors, and most modern electronics. 

Which Companies Dominate the Market? 

• Cadence Design Systems (CDNS) has a 30% market share but that could decline next quarter given its forecast of only a 1% growth in Q2 compared to the 20% growth expected by Synopsys.
• Synopsys (SNPS) has a 32% market share but that will increase to 38% with its expected upcoming acquisition of  Ansys (ANSS).
• Siemens EDA has about a 13% market share. It operates as an entity within Siemens Aktiengesellschaft (SIEGY) so no specific financial information is available on Siemens EDA and, as such, it is not included in the Portfolio, and
• another 10 companies, including Nvidia (NVDA), Advanced Micro Devices (AMD), Broadcom (AVGO), Keysight Technologies (KEYS),  Zuken (TYO:6947) and Aldec Inc., make up the remaining market.

The MunAiMarkets Pure-Play Custom Design (EDA) Software Stocks Portfolio: UP 7.6% in June; UP 2.8% YTD

Below are the June performances of the two pure-play EDA stocks, in descending order, and YTD, and the reasons behind changes in their stock prices month-ending June 27th on each:

1. Synopsys (SNPS): UP 8.3% in June; UP 3.6% YTD
   • Here's what has contributed to the increase:
     • U.S.–China Trade Thaw: 11% of Synopsys’ revenue comes from China, and the company had been facing export restrictions earlier in the year. but has now signed a new trade framework agreement that have dramatically improved Synopsys’ outlook.​​​​​​​​​​​​​​
     • Merger between Synopsys and Ansys: Every regulatory approval has been received in every jurisdiction except China, but they are in the final stages of securing clearance from China’s market regulator and investors interpret this as a sign that the $35 billion merger—a transformative deal combining EDA and simulation software—is on track to close soon.
2. Cadence Design Systems (CDNS): UP 6.3% in June; UP 1.6% YTD
   • ​​​​​​​Here's what fueled the move:
     • Anticipation of Strong Q2 Earnings: Analysts project upcoming Q2 financial summary to report revenue up 18.8% YoY which has created a bullish setup, with investors positioning ahead of the earnings release.
     • Increase in Institutional Ownership: Institutional investors continue to accumulate shares and now own 89% of CDNS shares which is seen as a sign that institutional investors are re-engaging after a flat year.
     • Sector Tailwinds: The broader rally in the semiconductor and EDA space benefitted CDNS as a key enabler of chip design,

Conclusion

The MunAiMarkets Pure-Play Custom Design (EDA) Software Stocks Portfolio was only UP 7.6% in June and is now UP 2.8% YTD.

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