It's been a rough Friday for Cadence Design Systems (CDNS). The stock fell nearly 10% as investors dumped high-valuation software names during a risk-off session. The Nasdaq dropped 0.80%, and the S&P 500 lost 0.65%, extending a three-day slide that capped one of the semiconductor industry's weakest weeks of the year.
So what's spooking the market? A big part of the story is a new AI model from Chinese startup Moonshot AI, unveiled at the World Artificial Intelligence Conference in Shanghai. The model, called Kimi K3, is a 2.8-trillion-parameter open-weight system being promoted as the world's largest. Its launch reignited fears that powerful, low-cost open-source AI models could undercut the pricing power of leading AI companies and reduce the long-term returns hyperscalers get from their massive AI infrastructure spending.
Those fears rippled across the AI ecosystem, hitting chipmakers, networking companies, and software firms tied to semiconductor design. Cadence, whose electronic design automation software, semiconductor intellectual property, and system design tools are essential for chipmakers developing advanced semiconductors, got caught in the downdraft.
But it's not just macro jitters. Cadence is also facing a key earnings test. The company reports quarterly results on July 27, and Wall Street expects earnings of $1.97 per share on revenue of $1.58 billion—up from $1.65 per share and $1.27 billion a year ago. The stock trades at about 85 times earnings, a premium that leaves little room for error. Still, analysts are mostly bullish: the consensus rating is Buy, with an average price target of $402.20. Recent calls include Benchmark at $450, Rosenblatt at $410, and Stifel at $432.
Technically, the picture has weakened. The stock is trading 12.4% below its 20-day moving average and 12.6% below its 50-day moving average. It's hovering just 0.1% above its 200-day moving average, putting it near a key long-term support level. The relative strength index (RSI) is at 27.20, which signals oversold conditions—not a guarantee of a rebound, but an indication that selling pressure may be exhausting itself.
The 20-day moving average is below the 50-day, a bearish signal. However, the 50-day remains above the 200-day following a golden cross in June, suggesting the longer-term uptrend isn't broken yet. Resistance is around $365, while major support sits near the 52-week low of $262.75.
At the time of publication Friday, Cadence shares were down 9.78% at $328.99.
