Cadence Design Systems is well-ahead of its AI peers when it comes to delivering steady returns, according to Bank of America. The electronic systems design company is a “high-quality growth compounder” that’s “well levered to AI,” analyst Vivek Arya said in a Wednesday note to clients. Cadence develops software, hardware and intellectual property that’s used to design chips and printed circuit boards, among other related products. Arya reiterated his buy rating on the company and lifted his price target by $20 to $350, which implies a potential upside of nearly 20% over the next year. Shares are up nearly 6% this year. Arya’s price target is a bullish take, built on an expectation that the company will see growth acceleration in the second half of this year and into 2025 on renewed booking momentum. He cited the stock’s potential to reclaim its historical premium to the PHLX Semiconductor Sector , or SOX, a capitalization-weighted index composed of the 30 largest U.S. companies involved in the design, distribution, manufacture and sale of semiconductors. “Like most long-term compounders, the true value of CDNS is often better felt when market becomes defensive,” Arya said in a Wednesday note to clients. “Over the past decade CDNS has delivered 33% annualized returns, 300bps ahead of rival SNPS , and among top 5 across our coverage, well-ahead of SOX index up 25%. Importantly, CDNS stock has outperformed the SOX index each of the 18 times the SOX index declined by over 10% since 2010.” According to Arya, the company has a “best-in-class profitability and opportunity” to gain market share with its clear focus on organic growth and avoiding large-scale mergers and acquisitions. AI should also propel share gains, Arya said, expecting Cadence to see longer-term double-digit sustainable growth well-levered to three phases tied to the emerging technology: complex chip design, incremental feature monetization and expansion into new markets. Even though the company’s sales have not jumped like the data center and AI sales of its key customers Nvidia , AMD and Samsung, management expects its growth is entering a more sustainable phase as AI features are adopted across new industries such as biology and autos, he said. Arya expects Cadence’s silicon and system expertise to benefit from the buildout of AI data centers over the next three to five years.
