Wall Street envisions a new bull market curve for semiconductors! Amid the AI agent frenzy, EDAthe "mother of chips"may become a new anchor for capital.

Title context: Wall Street envisions a new bull market curve for semiconductors! Amid the AI agent frenzy, EDAthe "mother of chips"may become a new anchor for capital. Text: Just as the Philadelphia Semiconductor Index ended its eight-day losing streak on Monday, the Morgan Stanley analyst team emphasized that the time for bottom-fishing in the semiconductor sector has arrived, and provided another key AI investment thread for the AI computing power trading theme: with recurring revenue supporting fundamentals, the two EDA super-giants in the world's largest marketSynopsys, Inc. (SNPS.US) and Cadence Design Systems (CDNS.US)are expected to expand the EDA software market size and achieve stronger earnings and valuation expansion through AI agent application products. Another Wall Street financial giant, JPMorgan, reported statistics on October 19 showing that in the week ending October 16, global equity ETFs saw inflows of $46.3 billion, of which SOXL (the triple-leveraged bullish ETF tracking the Philadelphia Semiconductor IndexUS ticker "SOXL") set a record single-week inflow of $7.2 billion for a single product, and Korea-tracking ETF product lines saw cumulative inflows of $1.3 billion, the strongest since July, with about $600 million entering the triple-leveraged Korea ETF KORU; meanwhile, DRAM-themed ETFs saw an eighth consecutive week of redemptions, with the latest weekly outflow of $900 million. These fund dynamics highlight that the market is actively betting on a semiconductor rebound, but bullish confidence in the valuation and earnings expansion cycle of semiconductors, including the memory chip supply chain, has not yet been repaired in sync, reflecting the coexistence of leveraged bottom-fishing and institutional risk reduction. Against this backdrop, the Morgan Stanley analyst team emphasized that the two EDA giants, compared with other semiconductor stock targets, possess the dual potential of earnings growth and valuation repair. Equity market analysts from Morgan Stanley stated in their research report that the next round of market re-rating and stronger rally for the two EDA software giants urgently requires positive delivery of "EDA AI agent adoptionlarge-scale commercializationearnings growth contribution." For both EDA giants, Morgan Stanley has an Overweight rating: Synopsys, Inc.'s target price was raised from $500 to $574, while Cadence's was maintained at $400; relative to the October 16 closing prices of $454.63 and $319.51 used in the report, the potential upside is 26.3% and 25.2%, respectively. The EDA software market dominated by the two EDA super-giants, Cadence and Synopsys, Inc., can be described as the "operating system, verification hub, and manufacturing signoff infrastructure for chip design," and is also the "first infrastructure" for all advanced-process chips in the AI computing power chain to move from concept to tape-out. It is therefore called the "mother of chips" by chip industry participants. Without EDA, modern advanced chips could not possibly complete logic design, routing, timing, power, thermal, reliability, and yield constraints at the level of tens of billions of transistors manually; without validated PDKs, standard cell libraries, IP modules, simulators, formal verification, and physical signoff tools, even the grandest chip design blueprints could not be reliably and mass-produced by wafer fabs. The underlying logic of EDA software benefiting from the unprecedented AI agent frenzy The two EDA leaders, Synopsys, Inc. and Cadence, since ChatGPT swept the globe in 2023, have very clearly embedded "AI application tools/AI agents" deeply into the entire workflow of their EDA software ecosystems, and recently have focused even more on "full-stack AI + EDA platforms." For example, Synopsys, Inc.'s Synopsys.ai has covered AI-driven processes from system architecture to design, verification, testing, and manufacturing. Agentic AI inference workloads focused on AI agents not only drive substantial expansion in design demand for increasingly customized AI chips and increasingly complex semiconductor systems, but also expand the usage space of EDA tools through automated design, verification, and simulation; usage-based charging is expected to convert new workloads into revenue and profit; combined with the recurring revenue base of traditional licensing business, Synopsys, Inc. and Cadence therefore possess the dual potential of earnings growth and valuation repair. In terms of the technology development path of EDA chip design software, the emergence of AI agents can be said to comprehensively expand the space for design generation and chip design software iteration, and also strengthen the value of reliable verification systems. It can write register-transfer level (RTL) code, create tests, and modify constraints, but the results still must pass simulation, formal verification, equivalence checking, and physical signoff. Cadence has already enabled agents to call professional engines such as Xcelium and Jasper to obtain feedback. It follows that the more intensive the design iteration, the greater the demand space for verification and optimization; EDA's process adaptation, engineering algorithms, and trusted result systems become an important foundation for agents to complete engineering tasks. In terms of the growth path, the large-scale penetration of AI applications into various industries is actively driving accelerated upgrades and iterations of GPUs, custom AI ASIC chip systems, memory components, data center CPU systems, and data center optical interconnect systems. Chip design agents oriented toward EDA software can significantly reduce R&D time costs, enabling the same budget to explore more architectures and versions. If new projects, tool coverage, and paid usage grow simultaneously, efficiency gains can EDA market expansion. Therefore, the long-term opportunity jointly pointed to by Morgan Stanley's bullish research reports on Synopsys, Inc. and Cadence is: more chips need to be designed, each design uses a broader set of tools, and new design activity can be charged for, enabling EDA chip design software to fully share in the strong revenue space from AI application expansion to hardware iteration. What to buy after the Philadelphia Semiconductor Index begins to rebound? EDA, supported by both increasingly strong chip design demand and recurring revenue, is worth watching It is worth noting that compared with the vast majority of semiconductor stock targets, the relative defensiveness of the two EDA chip design software giants, Synopsys, Inc. and Cadence, is very scarcemainly because they primarily serve chip R&D, and revenue does not directly change with current-period chip shipments or memory spot prices. Multi-period contracts, recurring revenue, and the continuity of R&D projects make revenue recognition relatively smooth. Morgan Stanley judges that if semiconductors enter a downturn, the two companies are expected to outperform other semiconductor companies in its coverage. Synopsys, Inc.'s application-optimized IP for hyperscale cloud providers will increase capital expenditure sensitivity, but the new model has not replaced the original business. This in turn allows the EDA giants to combine existing revenue resilience with AI incremental opportunities. Synopsys, Inc.'s most notable growth and change is first reflected in earnings upgrades. Management raised long-term EDA and design IP growth expectations to the mid-teens and high-teens, respectively; Morgan Stanley adopts 13%, 15%, and 9% for EDA, IP, and simulation growth in FY27 (i.e., the fiscal 2027 baseline), respectively, projecting revenue of $10.896 billion and adjusted earnings per share of $19.12, the latter about 6.5% higher than the original forecast of $17.96, and further rising to $23.14 in FY28 (i.e., the fiscal 2028 baseline). IP recovery, Ansys synergies, and Physical AI constitute the main drivers. Morgan Stanley believes the December earnings report may narrow FY27 guidance to the upper end. The $574 target price uses about 30x FY27 earnings valuation, still below the five-year historical average forward P/E of 36x, reflecting the joint drive of earnings improvement and valuation repair. Turning agent calls into their own revenue: the incremental commercialization path of the EDA duo Synopsys, Inc. proposes three AI paths: Full Stack, customer-owned platforms and agents, and Frontier Models. The Morgan Stanley analyst team stated that from a commercial mechanism perspective, this expands the entry points for professional EDA capabilities into different customer workflows, and usage-based charging is expected to capture new execution demand. Application-Optimised IP ("Factory 2") increases the degree of integration between IP and customer-specific application needs; Ansys integrated products extend the opportunity to system and multiphysics simulation. Morgan Stanley clearly pointed out in the research report that these paths are still early-stage, and the next round of re-rating needs to rely on positive outperformance against investor day targets, expanded customer cooperation, and evidence of each AI platform's contribution to earnings per share. Cadence's advantage is its solid existing business and broad agent portfolio coverage. Morgan Stanley expects third-quarter revenue of $1.612 billion, adjusted earnings per share of $2.07, and backlog of $8.2 billion; fourth-quarter earnings per share of $2.10, about 3% above consensus. Last quarter, IP grew 40% and the hardware business set a record; design-technology co-optimization (DTCO) support from Intel Corporation, Samsung, and Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR supports EDA demand. ChipStack already has more than 20 customer collaborations, and together with ViraStack, InnoStack, and AuraStack covers digital design verification, analog design, implementation signoff, and PCB and advanced packaging; the more significant contribution is expected to fall in 2027, and existing guidance has not yet factored in a jump in agent adoption. Morgan Stanley expects the company to increasingly emphasize broad customer adoption and penetration growth in the future, rather than announcing a blockbuster AI partnership similar to Synopsys, Inc. The common stock price catalyst for both is that AI value can enter the income statement. The Morgan Stanley analyst team stated that although Cadence had record orders last quarter, its stock price was basically flat the next day, so the October 26 earnings report needs to further explain the commercialization path. Morgan Stanley expects its FY27 (i.e., fiscal 2027) revenue of approximately $7.366 billion, earnings per share of $9.82, and adjusted operating margin of approximately 46.1%; the $400 target price corresponds to about 41x earnings; the analog and mixed-signal product lines, system analysis, and customer relationship growth path support its valuation premium. By comparison, Synopsys, Inc. has a lower valuation, but Ansys synergies and new business execution are more critical. The report gives bull-case scenarios of $1,000/$600 for Synopsys/Cadence and bear-case scenarios of $200 for both, respectively reflecting different scenarios such as accelerated growth and R&D contraction; the baseline targets remain $574/$400.