Cadence Design (CDNS) AI Stock Analysis

• Market Cap: $63.88B
• Dividend Yield: N/A
• Average Volume (3M): 2.46M
• Price to Earnings (P/E): 60.7
• Beta (1Y): 1.54
• Revenue Growth: 13.48%
• EPS Growth: 0.66%
• Country: US
• Employees: 12,700
• Sector: Technology
• Sector Strength: 40
• Industry: Software - Application
• EPS (TTM): 3.85
• Shares Outstanding: 274,313,600
• 10 Day Avg. Volume: 2,051,229
• 30 Day Avg. Volume: 2,460,344
• PEG Ratio: 92.33
• Price to Book (P/B): N/A
• Price to Sales (P/S): 15.50
• Price to Cash Flow (P/CF): 40.70
• P/FCF Ratio: 42.10
• Enterprise Value/Market Cap: N/A
• Enterprise Value/Revenue: N/A
• Enterprise Value/Gross Profit: N/A
• Enterprise Value/Ebitda: N/A
• 1Y Price Target: $323.77
• Price Target Upside: 39.77% Upside
• Rating Consensus: Strong Buy
• Number of Analyst Covering: 14

Cadence Design's strong financial performance and strategic leadership additions are significant positives. However, its high valuation, coupled with bearish technical indicators and challenges in the China market, temper the overall outlook. While strong fundamentals support long-term growth prospects, current market conditions suggest caution in the short term.

Positive Factors

Financial Performance

Cadence delivered Q4 above expectations with a strong backlog helped by strong demand for hardware and IP.

Growth Opportunities

Physical AI is expected to be a key growth driver for Cadence Design Systems due to the need for more advanced chip designs.

Product Adoption

Cadence’s AI product portfolio is gaining traction with tools like Cadence Cerebrus and Verisium seeing strong adoption.

Negative Factors

China Market Concerns

China, which makes up a significant portion of CDNS sales, declined by 15% in FY25, with potential risks of further declines due to macro uncertainties and US-China tensions.

Regulatory Challenges

Navigating complex export regulations remains critical, as restrictions limit access to advanced technologies for certain entities.

Sales Outlook

The FY25 sales outlook missed pre-call consensus due to continued deceleration in recurring EDA sales and a greater reliance on upfront sales.

Cadence Design Business Overview & Revenue Model

Company Description

Cadence 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 Money

Cadence Design Systems generates revenue primarily through the sale of software licenses, maintenance and support services, and subscriptions. The company's revenue model is built on providing sophisticated EDA tools and IP solutions that address the complex design requirements of its customers. Key revenue streams include the sale of perpetual licenses for its software, which allow customers to use the software indefinitely, and time-based licenses or subscriptions, which provide access to the software for a specific period. Additionally, Cadence offers maintenance and support services, which provide customers with software updates and technical assistance. The company also earns revenue from its IP segment by licensing semiconductor IP to customers, which can be integrated into their own chip designs. Strategic partnerships with leading semiconductor companies and an emphasis on innovation and R&D are significant factors contributing to Cadence's earnings, allowing the company to remain competitive and meet the evolving demands of the electronics industry.

Cadence Design Financial Statement Overview

Summary

Cadence Design presents a strong financial profile with robust revenue and profit growth, effective cost management, and a healthy balance sheet. The company generates strong cash flows, supporting its operations and future investments. Despite small fluctuations in growth rate and cash flow, the financial health remains solid, positioning the company well for sustained growth in the software industry.

Income Statement

Cadence Design shows strong revenue growth, with a consistent upward trend from $2.33 billion in 2019 to $4.64 billion in 2024. Gross profit margins remain robust, averaging around 95%, indicating effective cost management. The net profit margin is solid, maintaining above 22% over the years. However, the growth rate slightly slowed in 2024 compared to previous years.

Balance Sheet

The company maintains a healthy balance sheet with a strong equity position, as seen in the increasing stockholders' equity from $2.10 billion in 2019 to $4.67 billion in 2024. The debt-to-equity ratio is moderate, increasing gradually but managed well. The equity ratio hovers around 50%, indicating a balanced approach to financing.

Cash Flow

Cadence Design demonstrates strong operational cash flow, consistently exceeding net income, which highlights efficient cash generation. The free cash flow has been positive and stable, supporting growth and investment. However, a slight decline in operating cash flow in 2024 compared to 2023 signals a need for attention.

Breakdown
Dec 2024	Dec 2023	Dec 2022	Mar 2022	Mar 2021
Income Statement		Total Revenue
4.64B	4.09B	3.56B	2.99B	2.68B
	Gross Profit
4.43B	3.65B	3.19B	2.68B	2.38B
	EBIT
1.35B	1.25B	1.07B	779.09M	645.55M
	EBITDA
1.67B	1.42B	1.20B	927.72M	799.15M
	Net Income Common Stockholders
1.06B	1.04B	848.95M	695.96M	590.64M
Balance Sheet		Cash, Cash Equivalents and Short-Term Investments
2.64B	1.14B	882.33M	1.09B	928.43M
	Total Assets
8.97B	5.67B	5.14B	4.39B	3.95B
	Total Debt
2.48B	806.03M	748.08M	347.59M	346.79M
	Net Debt
-167.85M	-202.12M	-134.25M	-741.35M	-581.64M
	Total Liabilities
4.30B	2.27B	2.39B	1.65B	1.46B
	Stockholders Equity
4.67B	3.40B	2.75B	2.74B	2.49B
Cash Flow		Free Cash Flow
1.12B	1.25B	1.12B	1.03B	810.11M
	Operating Cash Flow
1.26B	1.35B	1.24B	1.10B	904.92M
	Investing Cash Flow
-837.12M	-412.25M	-738.63M	-292.95M	-292.16M
	Financing Cash Flow
1.24B	-803.57M	-657.05M	-643.79M	-415.29M

Cadence Design Technical Analysis

• Technical Analysis Sentiment: Negative
• Last Price: 231.64
• 50DMA: Negative
• 100DMA: Negative
• 200DMA: Negative
• MACD: Negative
• RSI: Neutral
• STOCH: Neutral

Evaluating momentum and price trends is crucial in stock analysis to make informed investment decisions. For CDNS, the sentiment is Negative. The current price of 231.64 is below the 20-day moving average (MA) of 253.05, below the 50-day MA of 265.68, and below the 200-day MA of 281.59, indicating a bearish trend. The MACD of -1.71 indicates Negative momentum. The RSI at 48.78 is Neutral, neither overbought nor oversold. The STOCH value of 34.99 is Neutral, not indicating any strong overbought or oversold conditions. Overall, these indicators collectively point to a Negative sentiment for CDNS.

Cadence Design Peers Comparison

Name	Overall Rating	Market Cap	P/E Ratio	ROE	Dividend Yield	Revenue Growth	EPS Growth
MSFT	81 Outperform	$2.66T	28.82	34.29%	0.88%	15.04%	12.38%
ADSK	70 Outperform	$52.29B	47.54	49.69%	―	12.35%	22.28%
CDNS	66 Neutral	$63.88B	60.67	26.13%	―	13.48%	0.66%
ANSS	66 Neutral	$24.91B	43.53	10.03%	―	12.11%	14.35%
SNPS	63 Neutral	$60.01B	28.16	16.27%	―	-1.19%	48.33%
PTC	61 Neutral	$16.81B	42.18	12.99%	―	6.05%	63.78%
Sector *	57 Neutral	$18.45B	9.41	-13.97%	2.74%	5.04%	-23.56%

Cadence Design Corporate Events

Cadence Design Welcomes Industry Veteran to Board

Cadence Design Systems has appointed Moshe Gavrielov to its board of directors, effective January 1, 2025. Gavrielov brings extensive industry experience, having previously served as CEO of Xilinx and in executive roles at Cadence and other technology firms. His appointment is seen as a strategic move to leverage his expertise to drive growth and enhance shareholder value, aligning with Cadence’s focus on innovation in the AI era.