Artificial intelligence stock Cadence Design Systems (CDNS) is this week’s Big Cap 20 stock as it sits in a buy zone.
Cadence develops hardware and software used for designing electronics systems, semiconductor chips and electronic devices. Its AI platform and data analytics environment are used in creating 5G systems, aerospace and defense products and scalable computing, as well as in the life sciences, consumer and automotive industries.
“Generational trends including AI, HPC (high-performance computing), and autonomous driving continue to fuel robust design activities,” said Anirudh Devgan, president and CEO, in the company’s third-quarter earnings release Oct. 23.
Its automotive technology is seen in the Tesla (TSLA) Cybertruck. The electric-vehicle giant teamed up with Cadence to design the futuristic truck’s Full Self Driving and DOJO AI chips for car navigation and computer vision.
Cadence stock holds the No. 2 spot out of 12 stocks in the design software group. The group climbed to No. 42 out of 197 IBD industry groups, from 101 four weeks ago.
AI Stock Tightens Up In Buy Zone
Cadence stock is in a 5% buy zone reaching to 293.29 of a flat base with a 279.32 buy point, according to MarketSmith pattern recognition. The AI stock broke out Jan. 19 in above-average volume. Shares got extended from the buy zone as they reached an all-time high on Jan. 24, but have eased back into the range.
The stock is showing tight closes and may be setting up for a bullish three-weeks-tight pattern as investors await its next earnings report. Shares briefly undercut the 10-week moving average in early January, after as Treasury yields rose and sent tech and software stocks on a downward spiral. Then, Cadence stock bounced from the base’s low as Treasury yields retreated.
CDNS shares have been on a jagged incline since the company’s third-quarter earnings report. The relative strength line is also on a bumpy, slow incline.
Profit Growth On A Positive Trend
Cadence exceeded its Q3 earnings and sales estimates in late October. Management gave fourth-quarter EPS guidance that disappointed analysts. But the AI company raised its full-year profit guidance, which was in line with views.
Third-quarter earnings growth accelerated to 19% from 10% and 13% in the prior two quarters. Meanwhile, quarterly sales growth ranged from 13% to 14% in the same time period.
Analysts project 19% full-2023 EPS growth and 17% in 2024. Cadence will release its fourth-quarter and full-year results on Feb. 12.
Cadence stock has a noteworthy 3 Earnings Stability Rating, indicating a stable earnings history over the last three to five years. The rating ranges from 1 to 99, with one being the best score.
CDNS stock holds an IBD Accumulation/Distribution Rating of B+. Mutual funds own 58% of shares, with 3,254 owning the AI stock in December, up from 3,178 in September and 3,150 in June.
The AI stock holds a 99 IBD Composite Rating and a 96 EPS Rating.
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