China Galaxy Securities: Wave of domestic EDA mergers and acquisitions driven by AI+ advanced processes usher in the rise of the "mother of chips".

China Galaxy Securities released a research report stating that domestic EDA is currently in a triple resonance period of "policy-driven + technological breakthrough + high demand growth". In the short term, there is a focus on domestic substitution and mergers and acquisitions integration; in the medium term, there is a focus on full-process coverage and AI empowerment; and in the long term, there is a focus on increasing global market share. It is recommended to pay attention to the long-term investment value of core targets in the industry chain. Main points of China Galaxy Securities: EDA is at the core base of the upstream of the integrated circuit industry chain, leveraging trillions of dollars in digital economy industries. EDA is the core technology of electronic system design automation, located at the core base of the upstream of the integrated circuit industry chain, spanning the entire process of chip design and manufacturing, directly determining chip design efficiency, production costs, and performance. By leveraging the semiconductor industry, it indirectly leverages the global trillions of dollars in digital economy industries, serving as the foundation of the inverted pyramid structure. The EDA industry has long been monopolized by the international "big three". With low penetration in China, there is ample space for domestic substitution. The global EDA industry is highly concentrated, with the "big three" Synopsys, Cadence, and Siemens EDA holding 74% market share. The global EDA market is expected to reach $18.3 billion by 2026 and is likely to exceed $30 billion by 2034. The Chinese market is expected to reach 22.2 billion yuan by 2026, with a growth rate of 20% significantly higher than overseas, indicating ample long-term market opportunities. The triple resonance opens up the industry's growth ceiling: 1) Stiff domestic substitution: In May of this year, the U.S. government began to impose export controls on EDA software, which were partially relaxed in July, but strict controls remain on advanced tools below 7nm, further driving domestic EDA companies to accelerate localization; 2) Technological and demand upgrades: the design costs for advanced processes from 7nm to 3nm have increased exponentially, and the post-Moore era of system-level design such as Chiplet, 3D IC, and heterogeneous integration has spurred new demand for AI+EDA; 3) Industrial integration catalyst: The current Chinese EDA industry is scattered and small-scale, with industry mergers accelerating, and leading domestic EDA companies are increasingly improving their product lines to enhance their overall strength. Risk warning: Intensified industry competition risks; technological research and development falling short of expectations; policy implementation falling short of expectations; and M&A integration progress falling short of expectations.