When the Google Pixel smartphone launches this fall, it will have a new Tensor processor designed in-house. That’s a bigger deal than most investors might think.
Google’s senior VP for hardware, Rick Osterloh, spent last week doing interviews with media outlets. He was telling the story of new processors that change what’s possible on a mobile device.
It’s a big deal for companies like Cadence Design Systems, Inc. (Nasdaq: CDNS).
Alphabet Inc. (Nasdaq: GOOGL) — the parent of Google — would not be the first big tech company to take processor design in-house.
Apple, Inc. (Nasdaq: AAPL) charted the course in 2007 when its industry-leading A-series chips gave iPhones best-in-class performance. Samsung followed in 2011 with the development of the Exynos line of processors.
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Since then, Apple remade its laptop lineup with M-series chips. And Tesla, Inc. (Nasdaq: TSLA) engineers designed new silicon for its artificial intelligence (AI) crunching self-driving software.
AI is a big part of the new Google chip designs, too.
On Monday, Gizmodo reported that Osterloh says the system-on-a-chip (SoC) design is the very first of its kind for a mobile device because it runs data center-level AI processing locally. In addition to better privacy, running powerful AI applications on the device means a faster, cleaner user experience.
Google’s Pixel smartphone is renowned for its excellent computational software, yet Osterloh showed off even better motion and video photography.
He also demoed real-time dictation with punctuation. And the wow factor was captioned, live-streaming language translation with native software called Interpreter Mode.
In the past, Google has been able to push the envelope with cutting-edge software. Bespoke — highly integrated hardware — will force peers to catch up.
Cadence Design Systems makes the computational software engineers use to design complex SoCs. As more companies move away from off-the-shelf silicon, the San Jose, California-based company is in the right place at the right time to provide solutions. Fundamentally, the business is in the midst of a supercycle as customers design new processors and integrated circuits for the 5G, mobile and AI applications that are turning up in automotive, industrial and communications products.
The outlook is especially bright for hyperscale computing. In April, Microsoft Corp. (Nasdaq: MSFT) and Google managers announced plans to accelerate capital spending at their data centers, including new central processing unit (CPU) and graphic processing unit (GPU) designs.
The overall market for hyperscale computing is expected to expand at a compound average growth rate (CAGR) of almost 27% through 2027, according to research from Data Bridge.
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This is a great example of why the digital transformation shows no signs of slowing down. Innovation is constantly knocking at the door, and Cadence also happens to be in the right place at the right time.
Cadence shares are up over 9% over the past month, and they’re on the verge of an important breakout at the $150 level.
Savvy investors should strongly consider using any near-term weakness as a potential buying opportunity.
Best wishes,
Jon D. Markman
