Cadence Design Systems, Synopsys rise as Deutsche Bank starts coverage with buy rating
Andrei Berezovskii

Cadence Design Systems (NASDAQ:CDNS) and Synopsys (NASDAQ:SNPS) rose on Thursday as investment firm Deutsche Bank started coverage on the semiconductor software companies, noting they are both in "highly attractive" areas.
Analyst Gianmarco Conti noted that both Cadence Design Systems (CDNS) and Synopsys (SNPS) are in the Electronic Design Automation and Intellectual Property areas, holding roughly two-thirds of the EDA market and are the second and third vendors in the IP space.
Given that both spaces are viewed as "highly attractive for investors," according to Conti, the analyst put a buy rating and a $200 and $420 price target on the stocks.
"We forecast 11% and 13% 2022-25 revenue [compound annual growth rates] for Cadence and Synopsys, driving 14% and 18% EBIT growth, all above consensus," the analyst wrote in a note to clients. 
The analyst added that there is likely to be continued high design demand in areas such as integrated circuits and systems-on-a-chips due to new applications in spaces like internet of things, 5G and automotive, particularly in electric and autonomous vehicles. It's also expected that new processor designs will drive innovation and consumption, while the companies diversify into less cyclical and more visible sources of revenue and can sell to companies not usually associated with the semiconductor industry.
Lastly, Conti said that both Cadence Design Systems (CDNS) and Synopsys (SNPS) could see further margin expansion due to improving cost structures after making significant investments over the past few years.
Earlier this month, investment firm Stifel said Cadence Design Systems (CDNS) and Synopsys (SNPS) are likely to see continued fundamental improvement due to the "increasing complexity and challenges" of chip design and manufacturing.
The Deutsche Bank analyst has been corrected to Gianmarco Conti, not Johan Schaller. Seeking Alpha regrets the error.