US-China Chip Deal: A Near-Term Win for EDA, But China's Tech Self-Reliance Poised to Redefine the Landscape

The U.S. decision to lift export restrictions on Electronic Design Automation (EDA) software to China in late June 2025 has sparked a rally in shares of Synopsys (SNPS), Cadence (CDNS), and Siemens (SIE), the three firms that dominate 70% of China's EDA market. While the move offers immediate relief for these companies, it also underscores a broader geopolitical reality: China's push for tech self-reliance is accelerating, and its domestic EDA sector—though still nascent—could eventually erode the dominance of U.S. firms. For investors, this creates a nuanced calculus: near-term gains are on the table, but long-term risks remain tied to Beijing's progress in closing critical tech gaps.

The Near-Term Boost: Revenue Recovery and M&A Catalysts

The June deal lifted curbs imposed in May 2025 that had forced U.S. EDA firms to seek licenses for sales to China. The restrictions, which disrupted access to tools critical for designing advanced chips, caused immediate pain for EDA companies. For Synopsys, which derives 16.1% of its revenue from China, the temporary halt likely cost about $100 million in annualized sales. Cadence, with 12.3% of its revenue tied to China, faced similar pressures.

The removal of these curbs has already sparked a rebound:

Synopsys shares rose 4.9% to $542 in June, while Cadence surged 5.1% to $324. Siemens, which already resumed sales, saw a smaller 0.9% gain. The deal also clears a hurdle for Synopsys' $35 billion merger with Ansys, which now appears on track to close by July 15.

Analysts estimate the May restrictions impacted only a month's worth of revenue for these firms, meaning the bounce-back effect is swift. For now, the U.S.-China trade truce—set to expire in August—buys time for EDA companies to resume full operations, though the fragility of the agreement looms large.

China's Self-Reliance: A Fragile But Growing Threat

While the U.S. deal eases short-term pain, it does little to address the long-term challenge: China's aggressive push to build domestic EDA capabilities. The country's “Made in China 2025” initiative has prioritized semiconductor self-sufficiency, and domestic EDA firms like Empyrean Technology and Primarius are gaining traction.

• Market Share Gains: Domestic players now hold ~6% of China's EDA market (up from 3% in 2020), with Empyrean alone capturing 50% of domestic sales.
• Revenue Growth: Empyrean's revenue surged 20.98% in 2024 to $168 million, a fraction of Synopsys' $6.1 billion but a clear sign of momentum.
• Technological Limitations: Despite progress, Chinese tools lag in supporting advanced nodes (e.g., 5nm or 3nm). Empyrean claims partial support for 7nm designs but lacks full-stack solutions, leaving U.S. firms dominant for cutting-edge chips.

The U.S. has weaponized these gaps: in December 2024, Empyrean was added to the Commerce Department's Entity List, restricting its access to U.S. components. This underscores the geopolitical stakes—Washington aims to keep China reliant on its tools for advanced chips, even as Beijing invests in alternatives.

Geopolitical Risks: A Fragile Truce and Tariff Drag

The June deal is part of a broader trade truce, but its expiration in August 2025 introduces uncertainty. Key risks include:
1. Renewed Restrictions: If U.S.-China tensions flare, new curbs on EDA or other tech could reinstate.
2. Tariff Drag: Existing U.S. tariffs on Chinese goods (55%) and China's retaliatory tariffs (10%) remain in place, limiting broader trade normalization.
3. Substitution Acceleration: If China's domestic EDA tools improve—aided by subsidies and forced adoption—U.S. firms' market share could erode.

For now, Chinese chipmakers remain dependent on U.S. tools for advanced designs. Even celebrated firms like Huawei's HiSilicon rely on Synopsys and Cadence for critical tasks. But as Chinese EDA companies mature, this dependency could fade—potentially over the next 3–5 years.

Investment Thesis: Buy the Dip, but Mind the Horizon

Near-Term Play:
- Synopsys (SNPS): The leader in market share and advanced-node tools. Its Ansys merger adds AI capabilities, making it a buy on dips below $500.
- Cadence (CDNS): Strong in digital design tools; its 12% China revenue exposure makes it a beneficiary of the truce.

Cautionary Notes:
- Siemens (SIE): Its EDA unit (Siemens EDA) holds ~10% of China's market but faces stiff competition. The stock's muted reaction reflects lower China exposure.
- Long-Term Substitution Risk: Investors should monitor Empyrean's progress and U.S. Entity List updates. A breakthrough in 5nm tooling by Chinese firms would pressure EDA stocks.

Key Metrics to Watch:
- Synopsys' China Revenue Growth: A drop below 10% would signal substitution.
- Empyrean's Market Share: A rise above 10% by 2026 could mark a turning point.

Conclusion: A Temporary Truce, a Permanent Challenge

The U.S.-China chip deal is a win for EDA stocks in the short term, but it doesn't resolve the deeper rivalry over tech dominance. Investors should capitalize on the near-term bounce but remain vigilant about China's relentless push for self-reliance. For now, Synopsys and Cadence are the beneficiaries of this fragile truce—buy them with an eye on geopolitical headlines and Chinese EDA progress. The next 12–18 months will reveal whether this is a temporary reprieve or the start of a new era in global chipmaking.