Needham supports the EDA duo: Keng Teng Electronics (CDNS.US) and Synopsys (SNPS.US) were mistakenly killed, smart AI materials drive the industry to accelerate growth

Zhitong Finance App learned that while CDNS.US (CDNS.US) and Synopsys (SNPS.US) stock prices have been falling for several recent trading days, investment bank Needham reiterated its “buy” rating for these two electronic design automation (EDA) giants and once again emphasized their core investment logic — intelligent AI (Agentic AI), which will drive the EDA industry to grow again.

Needham analysts, led by Charles Shi, said the bears have always had their biggest concern about the EDA industry, and AI could have a disruptive impact on the industry. Recently, bearish views have further heated up, especially after Dark Side of the Moon launched Kimi K3. The model uses the Big Language Model (LLM) to demonstrate certain automated chip design capabilities, heightening market concerns about AI replacing EDA tools, and causing the stock prices of Kengteng Electronics and Synopsys to fall for many consecutive days — until the close of the US stock market on Monday, Keng Teng Electronics fell for 7 consecutive trading days, while Synopsys fell for 6 consecutive trading days.

Analysts have refuted the bearish logic that “AI will disrupt the EDA industry” and believe that related concerns have been clearly exaggerated. EDA companies have also responded to this many times and emphasized that they are actually beneficiaries of AI development. Especially after the rise of intelligent AI, this technology is expected to reignite the growth of EDA software licensing.

The analyst said, “Overall, we believe that the application of the big language model (LLM) is probably mainly limited to RTL (register transfer level) code writing, and this will not affect the largest tool categories in EDA software, such as synthesis (synthesis), place and route (place and route), and physical verification (physical verification).”

The analyst further stated, “We believe that intelligent AI does not disrupt EDA, but rather complements EDA, and has the real potential to re-accelerate the growth of the EDA software licensing business. We've also compiled the real opinions of industry experts on 'AI-native EDA'. Taken together, we believe that AI-native EDA is still far from actually having a significant impact on the real industry.”

The analyst added, “Looking at the stock market, we have observed pessimistic narratives surrounding AI risks, which have led to obvious mispricing in the EDA sector.” Analysts recommend investors seize the opportunities brought about by this mispricing, while once again reaffirming that they are optimistic about the core investment logic of “smart AI driving the growth of the EDA industry again.” This view echoes suggestions made by BNP Paribas analysts last week. They also believe that the previous sell-off between Kengteng Electronics and Synopsys was unfounded, and advised investors to “buy on the dips.”