We recently compiled a list of the 10 AI Stocks That Could Go Parabolic According to Financial Media. In this article, we are going to take a look at where Cadence Design Systems, Inc. (NASDAQ:CDNS) stands against the other AI stocks.
One of the primary growth drivers in the AI industry over the past few years has been the exponential increase in data generation. The rise of the Internet of Things (IoT), social media, e-commerce, and various digital platforms has led to an unprecedented surge in data production. This vast amount of data serves as the fuel for AI systems, particularly in the development of machine learning models. Clive Humby, a venture capitalist, emphasized the critical role of data in AI development by famously proclaiming that data is the new oil. The ability to collect, process, and analyze large datasets allows AI algorithms to improve accuracy and deliver more sophisticated outputs.
Read more about these developments by accessing 33 Most Important AI Companies You Should Pay Attention To and 20 Industrial Stocks Already Riding the AI Wave.
To understand the AI revolution, it is also important to understand advancements in computing power. Moore’s Law, which predicts the doubling of transistors on a microchip approximately every two years, has played a crucial role in enhancing the processing power available for AI applications – consider companies like Taiwan Semiconductor Manufacturing and their advanced node processing. The advent of Graphics Processing Units (GPUs) and Tensor Processing Units (TPUs) – like the ones made popular by NVIDIA – has further accelerated AI development by enabling faster computation and more complex model training. Ray Dalio, founder of Bridgewater Associates, one of the largest hedge funds globally, says that these improvements in hardware have been a game-changer for AI.
The availability of massive investments in AI research and startups is also a key growth driver. According to a report by PwC, global investments in AI are expected to reach $15.7 trillion by 2030, with the technology contributing $6.6 trillion to GDP from increased productivity and $9.1 trillion from consumption effects. This influx of capital is spurring innovation and the commercialization of AI technologies across various sectors, from healthcare to finance. Prominent hedge fund managers are also taking note. Ken Griffin, the chief of Citadel Investment Group, says that AI is the most transformative technology of our time, and not just another bubble, but a structural shift in the economy.
Read more about these developments by accessing Billionaire Stan Druckenmiller Is Betting On AI Infrastructure, Tobacco and Industrial Stocks and 10 Tech Stocks to Monitor Amid Market Volatility According to Bernstein Analyst..
Our Methodology
For this article, we selected AI stocks that have explosive growth potential according to financial news outlets. These stocks are also popular among hedge funds. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
An office of software engineers and designers collaborating on a digital project.
Cadence Design Systems, Inc. (NASDAQ:CDNS)
Number of Hedge Fund Holders: 64
Cadence Design Systems, Inc. (NASDAQ:CDNS) provides software, hardware, services, and reusable integrated circuit (IC) design blocks worldwide. In the second quarter, the firm delivered 8.7% growth in revenue with $6 billion in backlog, beating the market expectations for both topline and bottom lines. It also guided to 12%-14% growth in revenue and 12%-16% growth in adjusted EPS for this fiscal year. These results are impressive considering the firm has expanded key partnerships in foundry and chip design in recent months. Some of the prominent ones include AI chip design and production with Intel and Samsung, two key players in the smartphone and PC markets globally.
Cadence Design Systems, Inc. (NASDAQ:CDNS) has earned bullish calls from Wall Street as a result. Piper Sandler recently upgraded the stock to Overweight from Neutral with an unchanged price target of $318. In an investor note, the advisory stated that the recent selloff presented an attractive entry point in a premier software asset with an enviable position in the semi industry.
Overall CDNS ranks 6th on our list of the AI stocks that could go parabolic according to financial media. While we acknowledge the potential of CDNS as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than CDNS but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
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