1 Chip Manufacturing Stock Making a Big Bet on AI

A battle is brewing in an under-followed part of the artificial intelligence (AI) industry: chip design software. Several merger and acquisition deals have been announced, and a mega-merger is pending between electronic design automation (EDA) leader Synopsys (NASDAQ: SNPS) and Ansys (NASDAQ: ANSS). Shortly after that was announced, the second EDA software suite, Cadence Design Systems (NASDAQ: CDNS), revealed its new supercomputing platform for simulating electronic systems.

Not wanting to get left behind, Japanese chip manufacturer Renesas (OTC: RNECY) announced its intention to acquire smaller EDA software provider Altium (OTC: ALMF.F). Is something big brewing in the AI market?

Renesas looks for a software boost

Renesas is an integrated device manufacturer, a company that both designs and manufactures semiconductors. It’s a hybrid business model that has been making a comeback in recent years. Besides Japan emerging as a top destination for manufacturing in the East, Renesas can thank the electric vehicle (EV) revolution for its resurgence, as well as a myriad of other more mature manufacturing processes (not leading-edge chips for things like data center AI) for chips in industrial and power applications.

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Among some other smaller acquisitions to bolster its power chip portfolio, I wrote last year about Renesas’ deal with Wolfspeed (NYSE: WOLF) to purchase silicon carbide (SiC) wafers for use in next-gen applications like EV motors.

But the purchase of Altium, a small competitor to the EDA software giants Synopsys and Cadence, is something else entirely. Tiny Australia-based Altium (which, notably, counts Wolfspeed as a chip design customer) generated revenue of just $139 million in U.S. dollars in the first half of its current 2024 fiscal year. And yet Renesas will be shelling out A$9.1 billion ($6 billion in U.S. dollars, using exchange rates on April 5, 2024). That’s a hefty price premium.

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Renesas’ stated rationale is to boost the software and digital tool capabilities it offers its clients, as many of those customers…

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