Autodesk (NASDAQ:ADSK) is just one stock favored by Jay Vleeschhouwer, Managing Director of Software Research at Griffin Securities.
Mr. Vleeschhouwer has over 40 years of research analyst experience in the technology sector, including software, computer hardware and imaging technology.
He formerly was senior analyst at Merrill Lynch, Josephthal Lyon & Ross, Bear Stearns, and Cantor Fitzgerald.
He was ranked by Refinitiv Starmine Analyst Awards (U.S.) #1 in “top stock pickers.”
Mr. Vleeschhouwer received a B.A. degree in economics and political science from UCLA and an MBA degree from the University of California, Berkeley.
“I cover what is referred to as engineering and enterprise software.
And under engineering software, which at times has also been referred to as technical software or industrial software, that would include a variety of companies whose products and services are used to design and engineer any number of industrial products, electronics and durable goods.
And the customer base for the companies that I cover, which I’ll name in a moment, would be in the automotive market, aerospace, any number of industrial markets, and as well the electronics and semiconductor markets.
The companies that I follow include Autodesk (NASDAQ:ADSK), Ansys (NASDAQ:ANSS), Dassault Systemes (OTCMKTS:DASTY), PTC (NASDAQ:PTC) — formerly known as Parametric, Altair (NASDAQ:ALTR) and Bentley Systems (NASDAQ:BSY). And I should also mention Cadence Design (NASDAQ:CDNS) and Synopsys (NASDAQ:SNPS).
And over time, a number of the companies we have followed have been acquired…
The companies that I follow are generally funded from their customers’ R&D and engineering budgets.
And those, by and large, remained quite stable. In fact, in some cases, as we’ve seen in the semiconductor industry, they have increased substantially in the last number of years.”
Autodesk (NASDAQ:ADSK) is most clearly affected by the current rapid expansion of US production plants.
“On the first topic you mentioned, which is onshoring, one example of how that would affect our companies is the design and construction of the manufacturing facilities themselves.
Some of the companies that we follow provide software that is used, in fact, in architecture and engineering and construction activities — known as AEC for short.
The leading company that would come to mind for that would be Autodesk (NASDAQ:ADSK).
To the extent that there is commercial construction activity of that kind, new factories, new battery factories or anything of that kind to support the onshoring activity, some of our companies would stand to benefit from that construction activity.
Later on, once the factories are up and running, again, our companies don’t get paid for how many widgets are produced in those factories.
But the products that would ultimately be made in those factories have to be designed and engineered, of course. And that then brings us back to the companies that we follow.
I think another very topical example of that would be what’s going on with the construction of new semiconductor fabrication facilities by, for example, Intel (NASDAQ:INTC) and TSMC (NYSE:TSM).
Sooner or later, those fabs will be up and running and the semiconductor companies want to utilize those as much as possible.
And that in turn will depend in part on the chips that are designed — and which need to be produced — through those facilities.
In many ways, the design and engineering of not only production facilities, but the products that flow through those facilities can be considered a kind of arms race.
And our companies provide the tools for the competition and product strategy requirements of their customers.
And inasmuch as our companies are in a relatively concentrated industry, that is to say there’s a small number of leading companies that comprise the industry rather than a large number of small companies, we have a fairly concentrated set of companies that then, again, is a very healthy situation, I think, in terms of growth, pricing power, operating margins and cash flow.”
Autodesk (NASDAQ:ADSK) is not the only stock this award winning analyst is pursuing
“In many ways, the companies that we follow — not all, but many — either are developing their own AI for their own purposes, for their own commercial applications.
Microsoft and Adobe certainly stand out in that respect.
A number of other companies have also begun to embed AI capabilities to enhance the productivity of their own products.
And at the same time, a number of our company’s products that they make available to their customers, in turn, enable AI.
So, for example, I mentioned earlier that we follow a number of companies in what’s known as electronic design automation — or EDA for short — Cadence and Synopsys being the two largest companies in that area.
And in addition to embedding AI features in their own software, their software is used by their customers to design AI chips, like NVIDIA (NASDAQ:NVDA), for example.
And then those new chips, in turn, enable more AI.
It becomes this cyclical process, where the software from our companies enables their customers among the semiconductor companies to design better and faster chips generally, but also AI-specific chips.
We see this from Microsoft, for example. In turn, those dedicated processors enable the consumption of more AI functionality and applications. And so, this builds upon itself.”
This recursive investment scenario benefits Autodesk (NASDAQ:ADSK) as well as NVIDIA (NASDAQ:NVDA).
“So, absolutely, our companies are going to be both enabling AI by their customers and offering it commercially within their own software…
Software, by nature, is a high margin business.
There are virtually no production costs associated with software.
There is, of course, the cost of development and the cost of sales and marketing.
But the gross margin on software is typically going to be very, very high.
The way you get operating margin improvement, obviously, is to leverage your R&D spending, your sales spending through faster revenue growth, expanding your markets, and so forth.
Those are all kinds of generic considerations.
But also, you want to think about their end-markets.
When you think about what’s going on in the automotive industry and the new developments there, new kinds of vehicles, new kinds of battery technology, all of that is going to be a tailwind for our companies.”
To get the full 3,289 word interview with the #1 Starmine Analyst Award winner Jay Vleeschhouwer, read it exclusively in the Wall Street Transcript.
Jay Vleeschhouwer, Managing Director – Software Research, Griffin Securities