Cadence Stock Rises On Earnings Surprise And Positive Outlook, But Retail Sentiment Lags

Shares of Cadence Design Systems Inc. ($CDNS) jumped by nearly 7% before markets opened on Tuesday after the technology company beat third-quarter estimates and raised its guidance for the year. 

The California-based firm reported earnings per share of $1.64 on sales of $1.22 billion in the September quarter. Wall Street expected earnings of $1.44 a share on sales of $1.18 billion, according to Stocktwits data. 

As compared to last year, Cadence’s earnings rose 30% while sales increased 19%. This is the fourth quarter in a row that Cadence has beat Wall Street estimates. 

The company raised its profit forecast betting on the boom in generative AI to drive demand for its software used to design complex chips that power those systems. 

It supplies both software and specialized computer servers to leading AI-chip designer Nvidia ($NVDA) and Apple ($AAPL), among others. The new profit estimate is $5.90 per share, slightly higher than the previous $5.87.

Cadence now predicts its annual earnings will be between $5.87 and $5.93 per share, up from an earlier range of $5.77 to $5.97. 

The company, however, trimmed the upper end of its full-year revenue forecast from $4.66 billion to $4.65 billion.

Retail sentiment on Stocktwits dipped further to ‘extremely bearish’ (23/100) from ‘bearish’ a day ago accompanied by ‘extremely high’ chatter.  

Investors appear to be cautious about its long-term trajectory since the stock’s value has only increased by 3% so far in 2024.

There were mixed reactions from Wall Street too. Needham reduced Cadence Design’s price target from $320 to $315 but maintained a ‘Buy’ rating’. According to the brokerage, the company’s performance was “solid” and it met expectations for growth but its still skeptical given the uncertainty in broader market conditions. 

Meanwhile, Baird raised its price target on Cadence Design from $332 to $340 with an ‘Outperform’ rating. The brokerage believes that Cadence’s position in the electronic design automation (EDA) market should not be overlooked as sentiment around the sector has room to improve. Baird sees opportunities for a rebound in 2025, which suggests a more optimistic outlook for the company's growth.

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