What Makes Cadence Design Systems (CDNS) an Investment Opportunity?

Rothschild & Co Wealth Management, an investment management company, released its LongRun Equity strategy first quarter 2025 investor letter. A copy of the letter can be downloaded here. The firm is a committed long-term business owner, focused on a portfolio of high-quality companies. The strategy declined 6.6% (in EUR, unhedged) in the first quarter compared to its benchmark, which fell 5.4%. The underperformance was due to a heavy decline in everything ‘technology’ related, while the consumer staples businesses contributed positively to the strategy’s performance.  In addition, you can check the top 5 holdings of the fund to know its best picks in 2025.

In its first-quarter 2025 investor letter, Rothschild & Co LongRun Equity strategy highlighted stocks such as Cadence Design Systems, Inc. (NASDAQ:CDNS). Cadence Design Systems, Inc. (NASDAQ:CDNS) is a global provider of software, hardware, and other services. The one-month return of Cadence Design Systems, Inc.  (NASDAQ:CDNS) was 5.62%, and its shares lost 1.43% of their value over the last 52 weeks. On July 2, 2025, Cadence Design Systems, Inc.  (NASDAQ:CDNS) stock closed at $310.95 per share, with a market capitalization of $84.902 billion.

Rothschild & Co LongRun Equity strategy stated the following regarding Cadence Design Systems, Inc. (NASDAQ:CDNS) in its Q1 2025 investor letter:

"In the first quarter we made two new investments, building positions in semiconductor design software provider Cadence Design Systems, Inc. (NASDAQ:CDNS) and leading aerospace company General Electric Aerospace. No divestments were made, leaving the portfolio with 25 ownership stakes.

Cadence, alongside its peer Synopsis, is the leading provider of software used to design semiconductor chips, also known as electronic design automation (EDA) software. Together, they control over two thirds of their target market. EDA solutions are absolutely mission critical to the semiconductor industry – particularly as chip complexity increases further – yet they only account for a small share of customer spend. This, coupled with an increased focus on value based pricing, positions Cadence well for further sales growth in the double digits and continued meaningful margin improvements. What’s more, the majority of sales are delivered via recurring subscriptions, thus providing strong visibility on future revenues, its notoriously volatile end market notwithstanding. The recent pullback allowed us to build a position in a business with durable double digit growth at just over 30x one year forward earnings."

Cadence Design Systems, Inc. (NASDAQ:CDNS) is not on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 59 hedge fund portfolios held Cadence Design Systems, Inc. (NASDAQ:CDNS) at the end of the first quarter, which was 59 in the previous quarter. In the first quarter, Cadence Design Systems, Inc. (NASDAQ:CDNS) reported $1.242 billion in revenue, up 23% year-over-year. While we acknowledge the potential of Cadence Design Systems, Inc. (NASDAQ:CDNS) as an investment, our conviction lies in the belief that 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 as promising as NVIDIA but that trades at less than 5 times its earnings, check out our report about the undervalued AI stock set for massive gains.

In another article, we covered Cadence Design Systems, Inc. (NASDAQ:CDNS) and shared the list of oversold blue-chip stocks to buy according to hedge funds. In addition, please check out our hedge fund investor letters Q1 2025 page for more investor letters from hedge funds and other leading investors. While we acknowledge the potential of CDNS as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you’re looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.

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Disclosure: None. This article is originally published at Insider Monkey.