What Happened?
Shares of semiconductor design software provider Cadence Design Systems (NASDAQ:CDNS) fell 5.2% in the afternoon session after the Trump administration told US companies that make software for designing semiconductor chips to stop selling to China. This instruction was aimed at restricting China's ability to develop advanced semiconductor chips, a critical area for artificial intelligence.
In 2024, CDNS's China revenue was $573 million or just over 12% of revenue. Given Cadence's significant market share in the Electronic Design Automation (EDA) market, the restriction could negatively impact its sales.
The shares closed the day at $288.45, down 10.7% from previous close.
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What The Market Is Telling Us
Cadence’s shares are somewhat volatile and have had 14 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The biggest move we wrote about over the last year was 7 months ago when the stock gained 13.1% on the news that the company reported impressive third-quarter earnings that blew past analysts' revenue and billings expectations. The strength was broad-based on strong double-digit sales growth recorded in the System Design & Analysis and IP segments. The Q4 bookings pipeline was described by management as “exceptionally strong”, suggesting a healthy rebound in the company's backlog. This was a very good quarter.
Cadence is down 0.6% since the beginning of the year, and at $295.92 per share, it is trading 9.4% below its 52-week high of $326.50 from June 2024. Investors who bought $1,000 worth of Cadence’s shares 5 years ago would now be looking at an investment worth $3,360.
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