The “Coolest” Investment Opportunity in Semiconductors

Michael Robinson

Tuesday, November 21, 2023

They say diamonds are a girl’s best friend. Heck, why not guys, too?

A few years ago, during my time as a touring musician, I needed some “bling” to spruce up my appearance on stage. So I turned to diamonds.

On my right hand, I wore a gold ring featuring 25 small diamonds. On my left, I had a gold ring that featured white diamonds off-set by two rows of black ones.

Recently, my jeweler provided me with a pinky ring sporting two diamonds. And I still wear a diamond earring.

I’ve had colleagues tease me about my jewelry obsession over the years. But as it turns out, the joke’s on them.

That’s because my diamond rings put me at the vanguard of Silicon Valley. And as it turns out, they’re the focal point of today’s investment opportunity...

The Power of Diamonds

To be fair, executives in the investment capital of the world aren’t exactly loading up on jewelry. But they are exploring diamonds’ use in electronics, in ways that could disrupt the $573 billion semiconductor sector.

Why diamonds? Let me explain...

All electronics give off heat. That’s especially true of semiconductors, which have billions of transistors sitting on a piece of silicon the size of a postage stamp.

Imagine millions of these conductors inside vast data centers that house hundreds of server racks, and you can get an idea of how heat generation can become a significant problem.

That’s where synthetic diamonds enter the picture. Electrical engineers say this material is one of the best heat conductors in the world...

Which is why Silicon Valley is exploring ways to use these diamonds inside chips to keep them running cool.

In the Meantime...

Admittedly, the diamond-infused semis aren’t ready for prime time. But their development gives you an idea of how chip firms are looking for game-changing innovations based on novel materials.

Indeed, the industry is already tapping the power of silicon carbide, a combination of silicon and carbon.

This material is sturdy. In fact, it’s often what bulletproof vests are made of. And it’s already being used in chips designed for electric vehicles (EVs) and related charging stations.

As you might imagine, being more resistant to heat and pressure makes silicon carbide a natural choice for chips used in autos, solar power, aerospace, and similar industries. No wonder why researchers at Needham forecast sales of silicon-carbide chips for EVs alone to reach $14 billion by 2030.

Introducing Cadence Systems

That’s where Cadence Design Systems (Nasdaq: CDNS) comes in.

Based in San Jose, California, Cadence is the product of a 1988 merger of two leading Silicon Valley software- and hardware-design firms.

Today, it’s a market leader in electronic-design automation (EDA), the business of doing the core development work on chips, circuit boards, and related hardware.

By relying on Cadence’s tools, equipment, and pre-designed templates, companies can cut development time for new pieces of hardware significantly. And in the fast-paced chip world, that translates to millions of dollars in cost savings.

Take a customer like STMicroelectronics (STM), for example. Late last year, this company launched its third generation of silicon-carbide EV chips. For the first time, these chips could run cars at voltages as high as 1,200 volts.

The higher the voltage, the less power is lost in transit, a crucial benefit when trying to squeeze as much range and power out of limited EV battery capacity.

Of course, STM uses Cadence’s EDA platforms to design, test, and develop new chips. And it’s far from the only one...

A Who’s Who of Clients

Cadence’s customer list reads like a who’s-who of companies angling to put out silicon-carbide chips for EVs, wireless technologies, and more. The list includes Bosch, Broadcom (AVGO), Nvidia (NVDA), ON Semiconductor (ON), Qualcomm (QCOM), Samsung, Siemens, Texas Instruments (TXN), and Toshiba.

But Cadence does more than help with chip design. It also provides clients with an ecosystem of out-of-the-box software. This enables chip makers and EV manufacturers to easily add infotainment, voice control, advanced-driver-assistance features, and more into their Cadence-designed products...

All without having to make the software from scratch.

As mentioned, the switch from silicon to silicon-carbide will require extensive design work, even as the number and sophistication of car chips keeps rising.

Simply put, the demand for Cadence’s services will only increase...

Making now a great time to get in.

Long-Term Potential

Cadence’s stock is rebounding from the sell-off that hit many high-tech stocks back in August. And it’s a company that offers tremendous profit potential, especially over the long haul.

Over the past five years, the S&P 500 is up about 63%. But during that period, CDNS has crushed those returns, rising nearly 500%.

I believe this company’s stock will continue to grow. Don’t miss out.

Cheers and Good Investing,

Chief Investment Officer
Trend Trader Daily

Tags: diamonds semiconductors