Investment bank Needham has reaffirmed its "Buy" ratings for the two electronic design automation giants, Cadence Design (CDNS.US) and Synopsys (SNPS.US), as their share prices have declined over recent trading sessions. The firm reiterates its core investment thesis that Agentic AI will drive a re-acceleration of growth in the EDA industry.

Analysts at Needham, led by Charles Shi, noted that the primary concern among bearish investors has long been the potential for AI to disrupt the EDA sector. These bearish sentiments have intensified recently, particularly following the launch of Kimi K3 by Moonshot AI. This model's demonstration of some automated chip design capabilities using large language models has heightened market fears about AI replacing EDA tools, contributing to a multi-day slide in the shares of Cadence Design and Synopsys. As of Monday's close, Cadence Design shares had fallen for seven consecutive sessions, while Synopsys shares had declined for six.

Needham analysts have countered the bearish argument that "AI will disrupt EDA," viewing the related concerns as significantly overblown. EDA companies have also repeatedly responded, emphasizing that they are actually beneficiaries of AI development, especially with the rise of Agentic AI, which has the potential to reignite growth in EDA software licensing.

"Overall, we believe the application of LLMs is likely to be largely confined to RTL code writing, which does not impact the largest tool categories within EDA software, such as Synthesis, Place and Route, and Physical Verification," the analysts stated.

They elaborated further: "We view Agentic AI not as a disruptor of EDA, but as a complement to it, with real potential to re-accelerate growth in EDA software licensing. We have also synthesized the real views of industry experts on 'AI-native EDA.' In summary, we believe AI-native EDA remains quite distant from having a significant impact on the actual industry."

The analysts added, "From a stock market perspective, we observe that the pessimistic narrative surrounding AI risks has led to a clear mispricing in the EDA sector."

They advise investors to seize the opportunity presented by this mispricing, while reiterating their optimism for the core investment logic that "Agentic AI will drive a re-acceleration of growth in the EDA industry." This view aligns with a recommendation from analysts at BNP Paribas last week, who similarly deemed the previous sell-off in Cadence Design and Synopsys shares as unfounded and advised investors to "buy the dip."