Analyst Note
| Victoria Radke |Narrow-moat Cadence Design Systems reported a strong first quarter, with the top and bottom line exceeding both management’s and our at-consensus expectations. Cadence continues to benefit from secular trends toward hyperscale computing, 5G communications, and AI/ML, which are all accelerating computing complexity, connectivity, and storage needs. While Cadence, like others in the space, benefits from this golden era of semiconductor design demand, we view the firm to be uniquely positioned to favorably capitalize on two key industry dynamics: advancing technologies requiring system-level designs, packaging, and analysis, and systems companies with more software content requiring hardware platforms for software bring-up. As a result, we view the firm as jointly benefiting from an overall industry boom and a preferential positioning with its systems portfolio, and view management’s raised outlook for fiscal 2022 as appropriate. We are raising our fair value estimate to $146 per share, from $138, and view shares as slightly overvalued.