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Cadence Design Systems (CDNS)
NASDAQ:CDNS
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Cadence Design
(NASDAQ:CDNS)
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Rating:73Outperform
Price Target:
$340.00
▲(14.76% Upside)
Action:UpgradedDate:02/20/26
The score is driven primarily by strong financial performance (growth, profitability, and free-cash-flow generation) and a constructive earnings-call outlook (record backlog, solid margins, and buybacks). These are tempered by expensive valuation (high P/E with no dividend yield provided) and only neutral-to-weak technicals (below key longer-term moving averages with negative MACD).
Positive Factors
Cash generation
Consistent, large operating cash flow (~$1.7B TTM) and FCF (~$1.6B TTM) support durable financial flexibility: funds R&D, product investment, buybacks and M&A without relying on external financing. Strong conversion (FCF ~0.91x net income) underpins multi-year capital allocation.
High margins & profitability
Very high non‑GAAP operating margins (~44.6%) and historical net margins provide structural competitive advantage: excess cash to reinvest, sustain higher R&D intensity, and maintain pricing power. Even with some year‑to‑year compression, margins remain industry-leading and durable.
AI/product momentum
New AI tools (ChipStack, Cerebrus) and strong IP growth (~25%) expand addressable markets and raise switching costs. Measurable productivity gains cited by customers (4x–10x in examples) suggest sustainable adoption that can drive multi-year revenue expansion and deeper platform entrenchment.
Negative Factors
Rising leverage
Material step-up in debt reduces financial flexibility versus earlier years. Higher leverage can constrain capital allocation during downturns, increase interest expense risk, and limit optionality for opportunistic M&A or accelerated R&D if cash generation weakens or hardware cycles soften.
GAAP vs non‑GAAP divergence
Large recurring adjustments create modeling and comparability challenges: substantial gap between GAAP and non‑GAAP metrics can obscure cash economics and persistently affect investor modeling. This increases uncertainty around sustainable reported profitability and tax/compensation impacts.
Hardware revenue lumpiness
A meaningful (~20%) hardware revenue stream is inherently lumpy and pipeline-driven, creating quarter-to-quarter volatility in revenue and margins. That structural lumpiness complicates forecasting, can amplify cycles during softer capex periods, and pressures near-term visibility despite software strength.
Cadence Design (CDNS) vs. SPDR S&P 500 ETF (SPY)
Market Cap
$83.02B
Dividend YieldN/A
Average Volume (3M)2.49M
Price to Earnings (P/E)73.1
Beta (1Y)1.40
Revenue Growth19.72%
EPS Growth1.59%
CountryUS
Employees12,837
SectorTechnology
Sector Strength88
IndustrySoftware - Application
Share Statistics
EPS (TTM)1.99
Shares Outstanding272,201,000
10 Day Avg. Volume2,998,456
30 Day Avg. Volume2,485,882
Financial Highlights & Ratios
PEG Ratio14.88
Price to Book (P/B)15.49
Price to Sales (P/S)16.01
P/FCF Ratio53.45
Enterprise Value/Market Cap0.97
Enterprise Value/Revenue15.13
Enterprise Value/Gross Profit15.73
Enterprise Value/Ebitda44.29
Forecast
1Y Price Target
$369.08Price Target Upside24.57% Upside
Rating ConsensusStrong Buy
Number of Analyst Covering12
EPS Forecast (FY)N/A
Revenue Forecast (FY)N/A
Cadence Design Business Overview & Revenue Model
Company DescriptionCadence Design Systems, Inc. provides software, hardware, services, and reusable integrated circuit (IC) design blocks worldwide. The company offers functional verification services, including emulation and prototyping hardware. Its functional verification offering consists of JasperGold, a formal verification platform; Xcelium, a parallel logic simulation platform; Palladium, an enterprise emulation platform; and Protium, a prototyping platform for chip verification. The company also provides digital IC design and sign off products, including Genus logic synthesis and Joules RTL power solutions, as well as Modus software solution to reduce systems-on-chip design-for-test time; physical implementation tools, such as place and route, optimization, and multiple patterning preparation; and signoff products to signoff the design as ready for silicon manufacturing. In addition, it offers custom IC design and simulation products to create schematic and physical representations of circuits down to the transistor level for analog, mixed-signal, custom digital, memory, and radio frequency designs; and system design and analysis products to develop printed circuit boards and IC packages, as well as to analyze electromagnetic, electro-thermal, and other multi-physics effects. Further, the company provides intellectual property (IP) products comprising pre-verified and customizable functional blocks to integrate into customer's ICs; and verification IP and memory models to emulate and model the expected behavior and interaction of standard industry system interface protocols. Additionally, it offers services related to methodology, education, and hosted design solutions, as well as technical support and maintenance services. The company serves 5G communications, aerospace and defense, automotive, industrial and healthcare, mobile, consumer, and hyperscale computing markets. Cadence Design Systems, Inc. was incorporated in 1987 and is headquartered in San Jose, California.
How the Company Makes MoneyCadence Design generates revenue primarily through the sale of software licenses, maintenance, and support services. The company's revenue model includes both perpetual licenses and subscription-based licensing, allowing customers to choose their preferred payment structure. Key revenue streams consist of software sales, professional services, and training related to their products. Additionally, Cadence engages in partnerships with semiconductor companies and technology firms, which not only enhances its product offerings but also expands its customer base. The company benefits from recurring revenue through maintenance contracts, which provide ongoing updates and support to clients, thus ensuring a stable income stream.
Cadence Design Key Performance Indicators (KPIs)
Any
Revenue by Geography
Breaks down revenue across different regions, revealing where Cadence Design is strongest and where it may face risk or growth potential due to local economic conditions or market share shifts.
Breaks down revenue across different regions, revealing where Cadence Design is strongest and where it may face risk or growth potential due to local economic conditions or market share shifts.
Data provided by:
The Fly
The FlyCadence Design Earnings Call Summary
Earnings Call Date:Feb 17, 2026
(Q4-2025)
| % Change Since: |
Next Earnings Date:Apr 27, 2026
Earnings Call Sentiment Positive
The call delivered a strongly positive operating and financial message: durable double‑digit revenue growth (14%), robust non‑GAAP margins (~44.6%), record backlog ($7.8B), sizable cash generation and active share repurchases, plus clear product and AI momentum (ChipStack, Cerebrus, IP growth). Management did, however, emphasize prudence around hardware pipeline variability, China visibility, export‑control assumptions and excluded the Hexagon deal from guidance — and GAAP vs non‑GAAP differences merit investor attention. On balance, the positive operational results, backlog visibility and AI/product traction materially outweigh the cited risks and conservative assumptions.Q4-2025 Updates
Positive Updates
Strong Revenue and Earnings Growth
Fiscal 2025 revenue grew 14% to $5.297 billion; fourth quarter revenue was $1.440 billion. Management reported ~20% EPS growth for the year. Non‑GAAP EPS was $7.14 for FY2025 (GAAP EPS $4.06).
Record Backlog and Visibility into 2026
Entered 2026 with a record backlog of $7.8 billion and management stated ~67% of 2026 revenue is coming from beginning backlog — providing strong near‑term revenue visibility.
High Margins and Cash Generation
Non‑GAAP operating margin was 44.6% for FY2025 (Q4 non‑GAAP 45.8%). Operating cash flow was $1.729 billion for the year ($553 million in Q4). Year‑end cash balance was $3.01 billion with $2.5 billion principal debt outstanding; the company repurchased $925 million of shares in 2025 and expects ~50% of free cash flow to be used for buybacks in 2026. Guidance implies ~ $2.0 billion operating cash flow for 2026.
AI and Product Momentum — ChipStack, Cerebrus, Allegro X and IP
Launched ChipStack AI Super Agent (claimed up to 10x productivity on certain tasks) and reported strong traction for Cadence AI products (Cerebrus, Verisium, Allegro X). Samsung reported a 4x productivity improvement using Cadence Cerebrus AI Studio; select customers reported 7–10x improvements on some RTL tasks. IP revenue grew nearly 25% in 2025; core EDA grew ~13%; System Design & Analysis grew 13%.
Hardware and Customer Wins
Hardware delivered a record year with 30+ new customers and higher repeat demand from AI and hyperscalers. Management noted 7 of the top 10 customers in 2025 were Dynamic Duo customers. Company expects further hardware strength entering 2026, albeit with prudent cadence for visibility.
Strategic Partnerships and Foundry Engagements
Deepened collaborations with TSMC (N2, A16), joined Intel Foundry Accelerator Alliance, expanded engagements with Samsung Foundry and Broadcom (Agentic AI workflows), and broadened footprint with marquee hyperscalers — positioning Cadence across AI infrastructure and physical AI opportunities.
Product Innovations with Measurable Benefits
Launched Tensilica HiFi IQ DSP (up to 8x AI performance, >25% energy savings for targeted markets). Management cited example physical design benefits (7–12% PPA improvements) and a customer reporting 30% layout efficiency gain from AI‑driven design migration.
Negative Updates
Guidance Assumptions and Acquisition Exclusion
2026 guidance assumes existing export control regulations remain substantially similar and does NOT include the pending Hexagon Design & Engineering acquisition — creating potential upside/uncertainty depending on regulatory or transaction timing. Management indicated Hexagon annualized revenue in the ~$200M range but did not include it in the guide.
GAAP vs Non‑GAAP Discrepancies
GAAP operating margin was significantly lower than non‑GAAP (GAAP operating margin 28.2% for FY2025 vs non‑GAAP 44.6%); GAAP EPS $4.06 vs non‑GAAP EPS $7.14 — a notable divergence investors must reconcile when modeling.
Prudence on Hardware and China Visibility
Management emphasized prudence for hardware (pipeline business with limited forward visibility beyond ~2 quarters) and moderated visibility for China; China represented ~12–13% of revenue and management kept conservative assumptions for the latter half of 2026 despite China growing ~18% in the prior year.
SD&A Licensing Transition Impacted Comparables
Transitioning certain SD&A/BETA customers to one‑year subscription terms (from multiyear contracts) reduced year‑over‑year comparability and was cited as a headwind to SD&A growth dynamics despite SD&A still growing ~13% in 2025.
Upfront / Hardware Revenue Lumpy and Guide Front‑Half Weighted
Upfront hardware revenue (~20% of revenues historically) remains lumpy and pipeline‑dependent; management’s 2026 guide is first‑half weighted with cautious assumptions for second half hardware demand, which could create volatility in quarterly results.
Incremental Margin Guidance vs. Prior Year Performance
Management noted achieved incremental margin of ~59% in 2025 but the 2026 guide implies a more conservative incremental margin (~51%), signaling prudent margin expectations despite strong prior leverage.
Company Guidance
Cadence’s 2026 outlook calls for revenue of $5.9–$6.0B, GAAP operating margin 31.75%–32.75% and non‑GAAP operating margin 44.75%–45.75%, GAAP EPS $4.95–$5.05 and non‑GAAP EPS $8.05–$8.15, and approximately $2.0B of operating cash flow while planning to deploy ~50% of free cash flow to share repurchases; the company noted the guide excludes the pending Hexagon D&E acquisition and assumes export control regulations remain substantially similar. For Q1 2026 Cadence guided revenue $1.420–$1.460B, GAAP operating margin 30%–31% and non‑GAAP 44%–45%, GAAP EPS $1.16–$1.22 and non‑GAAP EPS $1.89–$1.95. Management started 2026 with a record backlog of $7.8B (about 67% of 2026 revenue expected from beginning backlog), and disclosed year‑end cash of $3.01B, principal debt $2.5B, DSOs of 64 days, 2025 operating cash flow of $1.729B (Q4 operating cash flow $553M) and $925M of share repurchases in 2025.Cadence Design Financial Statement Overview
Summary
Strong overall fundamentals: multi-year revenue expansion, durable profitability, and robust free cash flow (TTM OCF ~$1.7B; FCF ~$1.6B). Offsets include meaningful leverage increase since 2023 (debt up to ~$2.5B; higher debt-to-equity) and some recent margin softening versus 2023–2024.Income Statement
CDNS shows strong and improving scale, with revenue rising from $2.7B (2020) to $4.6B (2024) and $5.3B in TTM (Trailing-Twelve-Months). Profitability remains solid with healthy net margins around ~21–25% historically (TTM ~21%). The main watch-out is some margin compression versus prior years (TTM operating profitability is lower than 2023–2024 levels), even as growth in the latest period is very strong.88
Very Positive
Balance Sheet
The balance sheet is generally sound, supported by a growing equity base (about $5.5B in TTM (Trailing-Twelve-Months)) and strong returns on equity (~22% TTM). However, leverage has stepped up meaningfully since 2023: total debt increased from ~$0.8B (2023) to ~$2.5B (2024) and remains elevated in TTM, with debt-to-equity rising to ~0.45 (TTM) from ~0.22 (2023). This higher leverage reduces financial flexibility compared with earlier years.72
Positive
Cash Flow
Cash generation is strong and consistent: operating cash flow is $1.7B in TTM (Trailing-Twelve-Months) and free cash flow is $1.6B, with free cash flow closely tracking net income (about ~0.91x in TTM). After a dip in free cash flow growth in 2024, TTM shows a sharp rebound in free cash flow growth. A mild caution is that operating cash flow relative to profitability is slightly below 1.0x in TTM, suggesting working-capital or timing effects, though overall conversion remains solid.84
Very Positive
| Breakdown | Dec 2025 | Dec 2024 | Dec 2023 | Dec 2022 | Dec 2021 |
|---|---|---|---|---|---|
Income Statement | |||||
| Total Revenue | 5.30B | 4.64B | 4.09B | 3.56B | 2.99B |
| Gross Profit | 4.53B | 3.99B | 3.65B | 3.19B | 2.68B |
| EBITDA | 1.88B | 1.67B | 1.46B | 1.20B | 916.12M |
| Net Income | 1.11B | 1.06B | 1.04B | 848.95M | 695.96M |
Balance Sheet | |||||
| Total Assets | 10.15B | 8.97B | 5.67B | 5.14B | 4.39B |
| Cash, Cash Equivalents and Short-Term Investments | 3.00B | 2.78B | 1.14B | 886.82M | 1.09B |
| Total Debt | 2.48B | 2.59B | 764.41M | 887.41M | 454.71M |
| Total Liabilities | 4.68B | 4.30B | 2.27B | 2.39B | 1.65B |
| Stockholders Equity | 5.47B | 4.67B | 3.40B | 2.75B | 2.74B |
Cash Flow | |||||
| Free Cash Flow | 1.59B | 1.12B | 1.25B | 1.12B | 1.03B |
| Operating Cash Flow | 1.73B | 1.26B | 1.35B | 1.24B | 1.10B |
| Investing Cash Flow | -460.52M | -837.12M | -412.25M | -738.63M | -292.95M |
| Financing Cash Flow | -948.98M | 1.24B | -803.57M | -657.05M | -643.79M |
Cadence Design Technical Analysis
Neutral
296.28
Price Trends
309.60
Negative
319.34
Negative
324.18
Negative
Market Momentum
-4.34
Negative
48.36
Neutral
66.13
Neutral
Evaluating momentum and price trends is crucial in stock analysis to make informed investment decisions. For CDNS, the sentiment is Neutral. The current price of 296.28 is above the 20-day moving average (MA) of 295.99, below the 50-day MA of 309.60, and below the 200-day MA of 324.18, indicating a neutral trend. The MACD of -4.34 indicates Negative momentum. The RSI at 48.36 is Neutral, neither overbought nor oversold. The STOCH value of 66.13 is Neutral, not indicating any strong overbought or oversold conditions. Overall, these indicators collectively point to a Neutral sentiment for CDNS.
Cadence Design Risk Analysis
Cadence Design disclosed 40 risk factors in its most recent earnings report. Cadence Design reported the most risks in the "Finance & Corporate" category.
Finance & Corporate - Financial and accounting risks. Risks related to the execution of corporate activity and strategy
Latest Risks Added 0 New Risks
Cadence Design Peers Comparison
UnderperformOutperform
Sector (61)
Name | Overall Rating | Market Cap | P/E Ratio | ROE | Dividend Yield | Revenue Growth | EPS Growth |
|---|---|---|---|---|---|---|---|
73 Outperform | $83.02B | 73.14 | 21.85% | ― | 19.72% | 1.59% | |
72 Outperform | $13.65B | 44.37 | 8.90% | ― | 10.62% | 31.43% | |
70 Outperform | $13.19B | 275.14 | 2.31% | ― | 19.21% | 75.32% | |
64 Neutral | $48.70B | 44.48 | 40.33% | ― | 15.62% | 2.59% | |
61 Neutral | $37.18B | 12.37 | -10.20% | 1.83% | 8.50% | -7.62% | |
52 Neutral | $60.25B | -44.41 | -53.32% | ― | 28.48% | -19.12% | |
47 Neutral | $35.98B | -7.04 | -11.11% | 0.08% | 1.65% | ― |
* Technology Sector Average
CDNS
Cadence Design
296.28
43.33
17.13%
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Glossary
BuyA stock rated as a "Buy" is expected to perform better than the overall market or a specific benchmark over the near-to-medium term. This rating suggests the stock is likely to deliver higher returns compared to other stocks in the same sector or market index. Note: This is not investment advice; please consult a financial advisor before making investment decisions.
HoldA stock rated as a "Hold" is expected to perform in line with the overall market or a specific benchmark. This rating indicates that the stock is neither particularly compelling nor unfavorable for investment. Note: This is not investment advice; please consult a financial advisor before making investment decisions.
SellA stock rated as a "Sell" is expected to perform worse than the overall market or a specific benchmark over the near-to-medium term. This rating suggests the stock may deliver lower returns compared to other stocks in the same sector or market index. Note: This is not investment advice; please consult a financial advisor before making investment decisions.
Disclaimer
This AI Analyst Stock Report is automatically generated by our AI systems using advanced algorithms and publicly available financial, technical, and market data. While the information provided aims to be accurate and insightful, it is intended for informational purposes only and should not be considered financial advice. Any content created by an AI (Artificial Intelligence) system may contain inaccuracies and/or contain errors. Investing in stocks carries inherent risks, and past performance is not indicative of future results. This report does not account for your personal financial circumstances, objectives, or risk tolerance. Always conduct your own research or consult with a qualified financial advisor before making investment decisions. The analysis and recommendations provided are based on historical and current data and may not fully reflect future market conditions or unexpected developments. Neither the creators of this report nor its affiliated entities guarantee the accuracy, completeness, or reliability of the information presented. Use this report at your own discretion and risk.