EDA tools forecast $3.7B market; 2 stocks to watch

Goldman Sachs projects electronic design automation (EDA) software for artificial intelligence will generate about $3.7 billion in annual revenue by the end of the decade. The forecast comes as the semiconductor industry faces a 2026 shortage of skilled chip design engineers and growing demand for custom AI chips.

EDA software automates tasks in chip development, including simulation, verification and physical layout. Firms are applying machine learning and autonomous design agents to translate design specifications into physical layouts, which requires placing and routing billions of transistors on silicon dies. The automation shortens development cycles and can reduce the manual work needed to produce custom accelerators.

Cadence Design Systems reported a record $8 billion order backlog entering the second half of 2026 and maintains gross margins above 85%. The company offers integrated AI design tools that run autonomous agents for routine layout and verification steps. Goldman Sachs raised its price target on Cadence to $470, which the bank projects implies more than 25% upside from recent levels. Technical observers note a sustained move above about $379, near the stock’s 20‑ and 50‑day moving averages, would be a positive technical indicator.

Synopsys has expanded its product set through acquisitions, including software from an engineering‑simulation provider. That combined portfolio includes system‑level simulation used to model how multi‑chip systems perform under heavy AI workloads, a capability customers say matters for large cloud providers and data‑center builders. Synopsys trades around 41 times forward earnings and is working through post‑merger integration. Goldman Sachs set a $600 price target on the stock, which the firm calculates as roughly 40% upside. Market participants flag a decisive move above roughly $446 as a potential trigger for further buying interest.

Goldman Sachs and other market participants identify risks to the outlook. Those include evolving global export restrictions on advanced chips and design tools, fluctuations in demand for custom hardware projects, and the timing of hyperscaler and fabrication investments. Both EDA vendors are exposed to policy changes and to investment cycles at major cloud providers and chipmakers.

EDA occupies the software layer of the semiconductor supply chain used before manufacturing. As companies seek faster paths to production without adding large engineering teams, demand for automation and system‑level simulation has increased. Investors and industry participants are monitoring revenue trends, margin profiles and integration progress at EDA vendors as indicators of how much of the projected market these companies can capture.