I’m sorry to say it, but Nvidia (NVDA) stock is doomed.
That’s the bad news. The good news is that, as Nvidia falls, certain other stocks are going to soar as they benefit from Nvidia’s demise.
You need to be buying those other stocks today.
Here’s the story…
The Rise of Electronic Design Automation
Nvidia, the darling of the 2023 “Artificial Intelligence Boom,” has benefitted from a huge short-term surge in demand for its AI chips. But those chips are built for general-purpose AI. They are “one-size-fits-all” chips. They worked great when everyone was building general AI applications. But now, everyone is working on customer AI applications.
That means the market is shifting away from Nvidia’s one-size-fits-all chips and toward custom AI chips.
Tesla (TSLA) is making this shift. So is Microsoft (MSFT). And Alphabet (GOOGL). And Amazon (AMZN). And Meta (META). And pretty much every major tech firm.
They’re all making their own custom AI chips for their specific AI applications. They’re all shifting away from Nvidia. They’re all shifting toward custom AI chips.
But making custom AI chips is not easy.
To make them, companies typically use what is called Electronic Design Automation, or EDA, software.
EDA software provides tools for electronic engineers to design, analyze, and simulate electronic systems and integrated circuits (ICs). It’s essential for developing everything from simple microcontrollers to complex custom circuits. Engineers use EDA software to:
- Draw electronic circuit schematics.
- Simulate circuit behavior, catching issues before building prototypes.
- Design printed circuit boards and ICs.
- Conduct timing, power, and signal integrity analyses.
In essence, EDA software ensures designs function properly and meet performance standards. It’s basically the planning software for the chips industry.
The Best Way to Play the AI Chip Boom
When you want to make a chip, you use EDA software. And, importantly, the more complex and custom the chip, the more you need EDA software.
Because of this, the EDA software market is primed for a huge boom in Nvidia’s demise.
As Big Tech firms increasingly shift away from Nvidia and the more they pursue their own custom AI chip-building efforts, those Big Tech firms will increasingly use EDA software to make highly complex AI chips.
Today, EDA software providers sell their software to chipmakers and electronic design firms. In the not-too-distant future, they’ll sell to those folks, and Tesla… and Amazon… and Microsoft… and Alphabet… so on and so forth.
Their customer list is about to increase by an order of magnitude.
So will their revenues.
The EDA software market is expected to sustain double-digit growth throughout the rest of the decade. Importantly, it will sustain that growth without much volatility. Growth rates won’t be all over the place; up 40% one year and then down 20% the next.
That’s because the EDA market – unlike the semiconductor market – is not cyclical. Semiconductor demand ebbs and flows with economic cycles. But companies design chips in good times and bad. Demand is impressively resilient.
For those reasons, we think the EDA software market represents the best way to play the AI Chip Boom.
Forget NVDA stock. It was the best play for the first wave of the AI Chip Boom, or the wave wherein everyone was building general-purpose AI applications and needed general-purpose AI chips.
EDA software stocks are the best way to play the second wave of the AI Chip Boom – wherein custom AI applications reign supreme.
The Final Word
The bottom line is that it is time to sell NVDA stock. And it is time to buy EDA software stocks instead.
The best picks?
Synopsys (SNPS) and Cadence (CDNS).
Synopsys is the undisputed leader in the EDA software market with what we estimate to be about 40% market share. Cadence is right behind them with about 30% market share. They are the two titans of the EDA software market.
And they are poised to win big in the custom “AI Chip Boom.”
Sell NVDA stock right away. Buy these two stocks instead.
And, if you’re interested, we also have a few other great stock picks for you, too.
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.