Chip technology reporting season kicked off overnight with robust third-quarter earnings from Cadence Design Systems (CDNS:NASDAQ). The San Jose-based company provides electronic design automation software which helps chip designers and manufacturers develop next-generation system-on-chip and printed circuit board designs needed for things like AI applications, so demand is unsurprisingly high.

Third quarter revenue hit $1.02 billion, marginally better than the $1.01 billion predicted by analysts, making it the 28^th consecutive quarter of revenue beats. Earnings for the three months to 30 September also trumped consensus estimates, posting $1.26 per share versus estimates of $1.20 per share, according to Investing.com data.

Cadence’ tools are being used by AI chip designers: Image source: Adobe

But arguably modestly weaker Q4 guidance left investors a little lukewarm, the likely reason for the stock’s 3%-plus decline seen by pre-market data – that and the blistering 2024 price to earnings multiple above 40.

FULL YEAR 2023 STEER

The stock is seen dropping from last night’s $239.92 close to $232 when Wall Street reopens later today.

Investors will now turn to Q4 performance, where Cadence is projecting earnings between $1.30 and $1.36 per share versus consensus of $1.08, and revenue ranging from $1.04 billion to $1.08 billion, where analysts had been predicting the top of that range. The firm’s full-year 2023 earnings are projected at $5.07 to $5.13 per share, with anticipated annual revenue of $4.06 billion to $4.1 billion.

Koyfin consensus data shows earnings and revenues of $5.86 on $4.56 billion and $6.66 on $5.07 billion for 2024 and 2025.

Cadence shares have rallied 50% this year (before today’s likely falls) and have surged more than 400% since 2018.

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