A seismic shift is underway in a lesser-known realm of the artificial intelligence (AI) universe: chip design software. Recent announcements of multiple merger and acquisition deals have set the stage for a significant transformation. At the forefront, a colossal merger looms between electronic design automation (EDA) leader Synopsys (NASDAQ: SNPS)
and Ansys (NASDAQ: ANSS). In response, the EDA software suite powerhouse, Cadence Design Systems (NASDAQ: CDNS), unveiled a groundbreaking supercomputing platform tailored for simulating electronic systems.
Not willing to be left in the shadows, Japanese chip giant Renesas (OTC: RNECY) made waves by declaring its intent to acquire the smaller EDA software provider, Altium (OTC: ALMF.F). Could this signal a significant development in the AI market?
Renesas Aims for a Software Revolution
Renesas, an integrated device manufacturer, combines chip design and manufacturing under one roof—a business model experiencing a renaissance in recent years. Japan’s emergence as a manufacturing hub, coupled with the electric vehicle (EV) revolution and advancements in industrial and power chip applications, has fueled Renesas’ revival.
As part of its strategic moves to fortify its power chip portfolio, Renesas inked a deal with Wolfspeed (NYSE: WOLF) to procure silicon carbide (SiC) wafers for cutting-edge applications like EV motors. However, the acquisition of Altium, a relatively small player in comparison to EDA giants like Synopsys and Cadence, marks a significant departure. Altium, a modest Australia-based firm with a revenue of just $139 million in the first half of its 2024 fiscal year, is being acquired by Renesas for A$9.1 billion ($6 billion USD).
Renesas justifies the hefty price tag by aiming to bolster its software and digital tool offerings, catering to non-tech-savvy clients like automakers who require assistance in implementing next-generation electronics.
The AI Tsunami on the Horizon
Currently, Nvidia‘s (NASDAQ: NVDA) data center AI systems dominate the landscape as companies harness data to train new AI models. Looking ahead, the trend indicates that these AI systems will require advanced architecture to be operational.
Renesas perceives a colossal opportunity in this realm by acquiring Altium and entering the fray alongside Synopsys and Cadence in electronics system design. Semiconductor manufacturers stand poised for sustained growth due to increased demand for embedding intelligent computing systems across a vast array of devices spanning automobiles, factory automation, and smart home gadgets.
Image source: Altium.
The surge in AI integration within devices themselves necessitates sophisticated and energy-efficient hardware—areas where Renesas has been actively innovating, exemplified by the Wolfspeed collaboration. By combining cutting-edge chip design with software capabilities, Renesas could cement its position as a pivotal player in the domain for years to come.
Renesas emerges as a hidden gem in the race for AI supremacy. With shares trading at approximately 13 times trailing 12-month earnings and free cash flow, the stock presents itself as a potential bargain provided it continues to advance in semiconductor manufacturing and design for automotive, industrial, and consumer electronics applications.
Is Renesas Electronics a Smart Investment?
Prior to diving into Renesas Electronics, it’s prudent to ponder this:
The Motley Fool Stock Advisor analyst team identified what they deem as the 10 best stocks for investors to secure impeccable returns. Renesas Electronics did not make their esteemed selection; however, the highlighted stocks could generate substantial growth in the foreseeable future.
Stock Advisor offers investors a straightforward roadmap to success, encompassing portfolio building guidance, regular insights from analysts, and two fresh stock picks monthly. Since 2002, the Stock Advisor service has surpassed the S&P 500 returns threefold.*
*Stock Advisor returns as of April 4, 2024
Nicholas Rossolillo and his clients hold positions in Cadence Design Systems, Nvidia, and Synopsys. The Motley Fool has positions in and recommends Altium, Cadence Design Systems, Nvidia, Synopsys, and Wolfspeed. The Motley Fool recommends Ansys. The Motley Fool maintains a disclosure policy.