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what it is
Cadence sells the software and hardware engineers use to design, test, and package the chips inside almost everything you buy.
how it gets paid
Last year Cadence Design made $5.3B in revenue. digital ic design and verification was the main engine at $1.86B, or 35% of sales.
why it's growing
Revenue grew 14.1% last year. The ongoing demand from the semiconductor industry for ai-driven design solutions has supported double-digit revenue growth relative to the prior year.
what just happened
Cadence posted revenue of $3.9B and EPS of $2.64 in the latest quarter, both well ahead of the prior year.
At a glance
A balance sheet — strong enough to weather a downturn
100/100 earnings predictability — you can trust these numbers
45.0x trailing p/e — you're paying up for this one
32.5% return on capital — every dollar works hard here
xvary composite: 69/100 — average
What they do
Cadence sells the software and hardware engineers use to design, test, and package the chips inside almost everything you buy.
Cadence wins because once your engineers build a chip workflow around its tools, leaving is painful. The company spends 35.3% of revenue on R&D, and that keeps its software tied to the newest chip designs. Backlog topped $7 billion at the end of 2025, versus $5.3 billion in annual revenue, so you are looking at demand that already has a line out the door.
How they make money
$5.3B
annual revenue · their business grew +14.1% last year
digital ic design and verification
$1.86B
custom analog and mixed-signal
$1.43B
system design and analysis
$0.95B
hardware emulation and prototyping
$0.64B
pcb and advanced packaging
$0.42B
The products that matter
chip design and verification software
Electronic Design Automation
$5.3B revenue · entire visible business
this is the full $5.3B revenue base, and it still grew 14.1% last year while keeping a 34.1% net margin. if you own CDNS, this is what you own.
core engine
Key numbers
$7B+
backlog
Backlog means contracted future work. Plain English: customers already lined up more than a full year of revenue.
45.0x
trailing p/e
You are paying 45 years of current earnings for one share. So what: the business has to stay excellent.
32.5%
return on capital
Return on capital means profit generated from money invested in the business. So what: Cadence turns investment into earnings far better than most software peers.
35.3%
r&d ratio
R&D as a share of revenue shows how much the company spends to stay ahead. So what: Cadence keeps feeding the moat.
Financial health
A
strength
- balance sheet grade A — very strong financial position
- risk rank 3 — safer than 50% of stocks
- price stability 45 / 100
- long-term debt $2.5B (3% of capital)
- net profit margin 34.2% — keeps 34 cents of every dollar in revenue
- return on equity 43% — $0.43 profit for every $1 investors have put in
A with balance sheet grade and net profit margin standing out. your money faces less risk here than at most public companies.
Total return vs. market
You invested $10,000 in CDNS 3 years ago → it's now worth $18,760.
The index would have given you $14,770.
source: institutional data · total return
What just happened
beat estimates
Cadence posted revenue of $3.9B and EPS of $2.64 in the latest quarter, both well ahead of the prior year.
Latest-quarter revenue rose 188% vs. prior year, while EPS climbed 151%. Consensus also had the last reported EPS at $1.99 versus a $1.70 estimate, a 17.06% surprise.
$3.9B
revenue
$2.64
eps
n/a
n/a
the number that mattered
The $7 billion-plus backlog matters most because it covers more than a full year's revenue and makes future demand easier to see.
-
cadence design systems likely closed out 2025 with solid financial results.the ongoing demand from the semiconductor industry for ai-driven (artificial intelligence) design solutions has supported double-digit revenue growth relative to the prior year. this has had a trickle-down effect on customers to build out their cloud infrastructure to take better advantage of ai technology. management noted that the largest spending customers have entered into the deployment phase for generative ai-driven design systems at scale. this augurs well for cadence because the technology commands significant computational power, providing a tailwind to microchip demand. meanwhile, the company continues to operate with an impressive gross margin, thanks to the significant discrepancy between supply and demand in the chip market.
-
we expect cadence to hold course and benefit from secular ai trends.systems design and the ip segments are expected to have revenues grow at double-digit rates for the next several years. customers have been quick to adopt ai services that help optimize microchips, pushing electronics to the physical limit.
-
strong bookings of advanced node design and system-level workflows raised the backlog to over $7 billion.
-
meanwhile, the company has been consistently acquiring small businesses to broaden its offerings.
-
this has helped generate healthy cross-selling activity.a definitive agreement to acquire hexagon msc software for $2.7 billion is expected to close in the first quarter of 2026, pending regulatory approvals.
source: company earnings report, 2026
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What could go wrong
the #1 risk is a slowdown in semiconductor design spending.
high
premium valuation meets slower growth
CDNS trades at 45.0x trailing earnings. that works when revenue is growing 14.1% and EPS is expected to grow 21%. it works a lot less well if growth drifts toward ordinary software-company levels.
the multiple is pricing in continued execution, not a sleepy quarter.
med
synopsys and siemens are real competition, not background noise
the moat is sticky workflows, not monopoly pricing. if a rival wins new design starts or broadens tool adoption inside major customers, cadence can still remain profitable while growth cools.
you would feel this first in bookings and revenue growth, not necessarily in an immediate collapse of margins.
med
the $2.7B hexagon deal adds execution risk to a very clean story
cadence has been easy to understand: strong software margins, steady growth, and predictable earnings. acquisitions complicate simple stories. approval timing, integration, and cross-sell execution now matter more.
$2.7B is a meaningful swing for a company generating $5.3B in annual revenue.
low
customer budgets still tie back to the chip cycle
cadence sells software, but the end demand still comes from companies building chips and systems. if semiconductor capex cools, tool spending can get delayed even when the long-term ai story stays intact.
because the visible business is one $5.3B revenue stream, there is not much segment diversification to hide behind.
all $5.3B of visible revenue sits inside the semiconductor design ecosystem, so a spending slowdown there would hit the whole story — and a 45.0x earnings multiple leaves little room for that.
source: institutional data · regulatory filings · risk analysis
Pay attention to
risk
hexagon close timing
the $2.7B deal is expected to close in q1 2026. if it slips, the stock loses an easy near-term catalyst and picks up fresh questions.
metric
revenue growth staying above 10%
last year was 14.1%. the current quarter setup is 10%. if that number keeps compressing while the multiple stays rich, the debate changes fast.
trend
ai deployment moving from pilots to standard workflow
the bullish read is that customers are scaling generative ai design tools, not just experimenting with them. cadence needs that trend to stay real.
cal
next earnings versus a high bar
the street is looking for $2.10 EPS on $1.3B revenue. with a 45.0x trailing p/e, beating is helpful. sustaining the story is what matters.
Analyst rankings
short-term outlook
average
momentum score 3 — in human-speak, analysts see a solid stock but not a screaming short-term setup.
risk profile
average
stability score 3 — neither a bunker stock nor a chaos machine.
chart momentum
top 20%
technical score 2 — the chart still looks better than most stocks over the next 12 months.
earnings predictability
100 / 100
management has been remarkably consistent. if you like clean numbers, this is the clean-numbers club.
source: institutional data
Institutional activity
institutions have been net buying for 2 consecutive quarters — 727 buyers vs. 548 sellers in 3q2025. total institutional holdings: 0.2B shares. net buying for 2 quarters.
source: institutional data
Price targets
3-5 year target range
$247
$535
$317
current price
$391
target midpoint · +23% from current · 3-5yr high: $455 (+45% · 10% ann'l return)
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