Thierry from arvy
CFA, Co-Founder & CIO of arvy, Quality Investing
Cadence and Synopsys are the shovels of the chip boom, controlling 74% of the EDA software every chip design depends on. Customers essentially never leave: switching is costly and risky, software is half of chip design costs and lifetimes exceed 20 years. Revenue is 80-85% recurring with high-80s gross margins and net margins above 20%, and EDA is projected to grow 12-15% a year as end-product makers such as Tesla join chip firms as clients. x.comÂ
Demand for chip-design software is booming, making Synopsys the chip-design name to own after Cadence's results. Cadence reported a record $8.2 billion backlog and raised its 2026 revenue-growth outlook to 21%; Synopsys is still about 12% below its May high, and all four models signal Long on Synopsys versus Flat on Cadence. x.comÂ
Cadence's IBD composite and EPS ratings of 90 support its standing as arguably the best in the 'making chips better' group after ASML. The screen estimates 2026 EPS growth of 18% and sales growth of 21%. Its chart is near a breakout after a long pullback. x.comÂ
Synopsys and Cadence face a net competitive negative if large chip designers build custom verification tools in-house, taking share of the largest slice of the EDA workflow. The market will likely sell the incumbents as this gets digested. Offsetting that, faster time to market is becoming table stakes, raising both the value of agentic design tools and the cost of failure. @lokoyacap counters that nothing shows EDA being made unnecessary and that it supports pricier AI-enabled seats. x.com … Show more
Cadence's ambition beyond EDA is not priced in: it aims to shift chip-design competition from tool against tool to agents running the whole design flow, where Synopsys's front-end lead would matter less. At CadenceLIVE it launched AgentStack, extending its AI agent across physical, analog and system design with NVIDIA as an early partner, and added Google's Gemini. NVIDIA still backs Synopsys, and the shift may not take hold, but field chatter on senior hires and M&A points the same way. x.com … Show more
Synopsys and Cadence benefit as AI shifts from general-purpose to specific-purpose models, a transition moving unusually fast and a sign this is a continuation of the buildout rather than a new cycle. Synopsys and OpenAI signed a multi-year deal to build GPT-Synopsys, a model that runs Synopsys EDA tools for tasks like timing closure and verification, with shared revenue. Synopsys also announced a multi-year, $1B+ silicon IP agreement with Amazon, showing what EDA players' IP can be used for. … Show more
Synopsys and Cadence are shorts while ASIC design houses Global Unichip and Alchip are longs, because hyperscalers are taking chip IP design in-house. Synopsys design IP income fell 48% in Q1 to $66.1M, yet EDA trades near 70x earnings after losing China. Megacap seat counts are flat to down as AI makes engineers 2-3x more productive; Google TPU, AWS Trainium and other ASICs sold Cadence no new seats. Global Unichip revenue is up 60%, and Alchip, working on Trainium, is the highest-beta long. … Show more
"AI replaces EDA" is probably the wrong trade, because AI agents send more generated designs back through Cadence's and Synopsys's verification engines. Cadence's ChipStack RTL agent averaged 24% less area and 18% less power than raw model output in its own early tests, directional evidence, not a production benchmark. Cheap RTL still must be verified and signed off, so more designs can raise tool use per engineer. The bear case is pricing: if agents are bundled, customers keep the gains. x.comÂ
AI should expand Cadence's market as pressure on silicon multiplies the companies designing custom chips, and every chip design startup uses its tools. EDA has risen from 7% to 11% of semiconductor R&D, and Cadence's CEO says AI agents run far more base-tool iterations, lifting usage. Moats are deep, as fabs must certify tools over years. The risk is that its few, highly savvy customers use AI to replace parts of the workflow, and it is tied to chips designed, not to inference spend. x.comÂ
LLM-driven hardware verification is generally bearish for Synopsys and Cadence, but not predictably enough in the short term to justify betting against them. A post being answered argues verification is the cleanest monetization path for the new LLM capability, with private math pure plays Harmonic and Axiom Math likely to target it, so sentiment on both should worsen. The development is broadly bullish for compute. x.comÂ
Synopsys and Cadence stand to benefit as headless software lets AI agents run design and simulation jobs without a UI, an end state that is pretty bullish for EDA companies. As simulation integrates physics, with Synopsys using Ansys tools tied into Nvidia's Omniverse, agent swarms could test 1,000 chip design permutations instead of two or three and sharply reduce physical testing. Getting there will take a while, and Synopsys will be a slow grower for a bit. x.comÂ
