Stock Split Watch: Two Artificial Intelligence (AI) Stocks That Look Ready to Split

Core Viewpoint - The article highlights the significant growth and potential stock splits of Synopsys and Cadence Design Systems, two leading companies in electronic design automation software, amidst the booming adoption of artificial intelligence in the semiconductor industry [1][2]. Group 1: Company Overview - Synopsys and Cadence Design Systems dominate the electronic design automation (EDA) market, each holding approximately 35% market share, with the remainder occupied by smaller players [2]. - Both companies provide essential tools for chip design, prototyping, and testing, and also offer semiconductor IP design blocks that are licensed to chip designers [2]. Group 2: Market Trends - The demand for semiconductors is increasing as more devices incorporate chips, with the AI revolution further accelerating this trend [2][3]. - More companies, including cloud hyper-scalers, are designing custom chips, leading to a rise in complexity in chip designs, which benefits Synopsys and Cadence as they help accelerate and test these designs [3]. Group 3: Financial Performance - Synopsys and Cadence have significantly outperformed the S&P 500 and Nasdaq 100 over the past five years, with Synopsys' share price reaching $506 and Cadence's at $273 [4]. - The companies have high P/E multiples, with Cadence at 71 times earnings and Synopsys at 53 times, reflecting their strong market positions and recurring revenue [6]. Group 4: Analyst Insights - Analysts believe the current valuations of Synopsys and Cadence are justified due to their growth potential, despite recent pullbacks of 15% for Cadence and 18% for Synopsys from their highs [7]. - Baird analyst Joe Vruwink has upgraded Synopsys with a price target of $663, anticipating a mid-teens growth rate, which is more optimistic than the consensus [7]. Group 5: Long-term Outlook - The long-term growth potential for Synopsys and Cadence hinges on the increasing complexity of chips and the growing trend of companies designing custom chips, driven by AI advancements [8]. - If the answers to key questions regarding AI's impact on chip growth and complexity are affirmative, these companies remain attractive long-term investments [8].