There’s an old saying in the markets; “The longer the base, the higher in space.” Cadence Design Systems ‘CDNS’ just broke from a 16-month base following a strong earnings report. Sixteen months may not seem that ridiculously extended, but for a company that helps the biggest chip makers in the world design, test, and perfect their chips before they even begin manufacturing, and NVDA higher by 84% in that same 16-month period, I think it’s significant. I’ve been watching this name for some time to add to my portfolio and have owned this in the past, but Tuesday morning’s earnings popped the stock out of the base consolidation. I was hesitant to buy this stock up 10% following the report, but looking at the weekly chart you’ll see a series of 1-year or greater bases followed by breakouts ranging from 64% to 130%. With room to run, I added a 4% allocation to my Active Opps portfolio this morning and with confirmation that support is holding and buyers continue to push the stock higher, I’ll aim for an 8% holding. Notice the GAAP earnings projection below the chart of $4.27 in 2025, but then a 28.9% growth to $5.50. Non-GAAP EPS for 2025 is expected to be $6.75 and then grow to $7.79 in 2026. Top line is also growing nicely at a 11%-19% clip. Moving down to the daily chart you see an up-close look at the range that’s been in play since March 2024. I would not be surprised to see a pullback towards $350/$340 and if buyers appear offering the stock support, I’ll know there is more institutional money coming to market to get on board the initial missed breakout. Cadence shares essentially a duopoly with Synopsys, Inc (SNPS) in the electronic design automation (EDA) market. This is a high barrier to entry, highly technical segment that is a foundation to the entire semiconductor design market. Their customer base includes Nvidia, AMD , Intel , AMR, Tesla , and Apple and are deeply entrenched in these company’s workflows. Jensen Huang, CEO of Nvidia, said that Cadence’s Palladium emulation system is indispensable to Nvidia. Apple uses Cadenece’s EDA suite in their custom M-series chip and their growing AI infrastructure projects. Moreover, they are diversified from just consumer electronics as they service automotive, aerospace, and AI infrastructure. In our Active Opps portfolio we hold a 4.07% allocation in CDNS established July 29. – Todd Gordon, Founder of Inside Edge Capital , LLC We offer active portfolio management and regular subscriber updates like the idea presented above DISCLOSURES: (Gordon and his firm own CDNS) All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
