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Cadence Design Systems' latest quarterly figures from June 2025
Key figures for Cadence Design Systems stock from the HGI analysis
While stocks such as Nvidia are currently in the stock market spotlight, the products of a company with a quasi-monopoly position are all the more important for driving the AI trend forward. We are talking about none other than Cadence Design Systems (ISIN: US1273871087), the global market leader for EDA solutions.
From smartphones to data centers to autonomous vehicles, Cadence's software and hardware solutions are an important building block for the complex chips and systems that power our digital world. And that's even more true since AI came along.
Cadence is no longer an insider tip. Over the past 20 years, its stock has gained more than 2,000%, establishing itself as a reliable growth story.
Source: Cadence stock price
Several factors suggest that Cadence offers further potential in the long term. Given its stable moats, high margins, and intact megatrends, a doubling of the company's value by 2030 seems entirely realistic—provided that the pace of growth continues.
Today's Cadence Design Systems stock analysis takes a closer look at what exactly sets the stock apart and why investors should perhaps keep an eye on it despite its high valuation.
Cadence is a leading provider of electronic design automation (EDA) solutions. The company offers software tools, hardware platforms, and IP blocks for the design, verification, and implementation of electronic circuits, integrated systems (SoCs), and printed circuit boards (PCBs). Its customers are primarily companies that develop complex electronic systems and chips. These naturally include the heavyweights of the semiconductor industry such as Intel, AMD, NVIDIA, Qualcomm, and Broadcom. Major electronics and system manufacturers also use Cadence software and hardware to develop computers, smartphones, automobiles, medical technology, and consumer electronics. In addition, companies from the automotive and aerospace industries are among its customers. This is particularly true for those that require reliable electronics for safety-critical systems. Manufacturers of consumer goods and IoT devices also use Cadence products to design energy-efficient and compact chips. Cloud and data center providers, in turn, use Cadence solutions to develop high-performance and AI systems. Universities and research institutions also use the software for teaching and research projects. This demonstrates the broad applicability of the software.
From an economic perspective, the business model is essentially based on two pillars: the “Products and Maintenance” division and the “Services” division.
The first division generates the largest share of revenue, accounting for around 91.8 percent. In this segment, Cadence mainly offers software licenses and hardware products such as emulation and prototyping platforms. In addition, there are maintenance and support services, which include updates, technical support, and documentation. The model ensures stable, recurring revenue and is characterized by high margins, as the costs are mainly incurred during development, while ongoing maintenance incurs comparatively low expenses.
The “Services” segment contributes around 8.2 percent to revenue. Here, Cadence Design Systems offers consulting and engineering services, technical support, and training. These services complement the products and help customers use the software and hardware solutions efficiently and adapt them to their needs. Even though this segment's share of revenue is small and appears to be less strategically relevant, it increases customer loyalty and enhances the value of the overall offerings.
It is striking that the EDA software market is dominated by only a few players. Probably the biggest competitor is Synopsys, with a similarly high market share of around 30 percent. Synopsys offers a very wide range of software and IP solutions for chip design and verification. Another significant competitor is Siemens EDA, formerly known as Mentor Graphics. Based in Oregon (USA), the company is a subsidiary of Siemens and is particularly strong in the field of circuit board design and simulation. However, there are also specialized providers such as Ansys, which compete with Cadence primarily in physical simulation and chip package design. In addition, smaller EDA and IP providers as well as open-source tools compete in individual niches, but cannot match the breadth and depth of the three major providers Synopsys, Cadence, and Siemens EDA.
The market for electronic design automation, in which Cadence operates, is attractive to investors not only because of its growth potential or high margins. Above all, it has a number of special features that have led to a high degree of concentration. These include, for example, a high degree of specialization and the in-depth technical knowledge required for this. After all, the software is responsible for the design, simulation, and verification of increasingly complex and powerful chips and therefore has to be capable of more than other software in some cases. Only a few providers such as Cadence, Synopsys, and Siemens EDA dominate almost the entire business—thanks in part to numerous acquisitions. New competitors find it difficult to enter the market today, as this requires major investments in R&D. Probably the biggest argument is that the established companies have long-standing customer relationships. Here's an explanation: Once design tools have been introduced, they are deeply integrated into the customer's development processes. Switching to another provider would be very expensive and time-consuming, which strengthens the bond with existing providers. The moats are deep, and that's exactly what providers are charging high prices for.
Another important point, however, is the strong growth, which should be of particular interest to investors. Demand for semiconductors is rising steadily due to trends such as artificial intelligence, cloud computing, 5G, autonomous driving, and the Internet of Things. Without EDA software, however, the development of modern, complex chips would not be possible at all.
Companies such as Cadence Design Systems are constantly driving developments forward. This is also reflected in the fact that the company is consistently aligning its products with new areas such as AI-supported automation, high-performance simulation, and cloud-based engineering platforms. Key innovations include Cerebrus AI Studio (AI-powered chip design), the Millennium M2000 supercomputer (20 times faster simulations), and the Allegro X platform with Omniverse integration. This is complemented by a steadily growing IP portfolio.
Not to be forgotten: Cadence Design Systems is involved in the new Industrial AI Cloud in Europe. There, the company provides its engineering tools on NVIDIA hardware, enabling performance boosts by a factor of 80 and more. This offering is complemented by the new Tensilica NeuroEdge 130 AI co-processor, which was developed for applications in the automotive and consumer electronics sectors.
The products are well received, as the figures for the second quarter of 2025 show. Cadence Design Systems recorded significant growth in this period. Revenue rose by 20 percent year-on-year to US$1.28 billion. This is primarily due to broad demand for the products and strong new customer bookings. Earnings grew disproportionately, with EBIT and EBITDA up 25 percent. Net profit, on the other hand, fell by 30 percent to US$160 million, which is attributable to a one-time effect. The background to this is settlement payments of over US$140 million in connection with legal proceedings by the US Department of Justice and Department of Commerce regarding illegal technology exports to China.
Source: Financial Data Cadence
Particular emphasis was placed on the strategic importance of the AI-supported portfolio for the second quarter of 2025, which is increasingly accelerating the development of chips and complex systems. For example, the company's management emphasized that all business areas contributed to growth. The core business in the area of electronic design automation grew by 16 percent. The IP business even grew by more than 25 percent. This growth was driven by an expanded portfolio and rising demand for silicon solutions. The System Design & Analysis segment performed even better, with growth of 35 percent. Here, Cadence benefited primarily from its multi-physics platform and new AI-powered optimization capabilities. Despite temporary restrictions in its China business, Cadence was able to strengthen its position and raise its annual forecast. More on this in the following chapter.
Cadence Design Systems has issued a very positive forecast for the 2025 financial year. For example, revenue of up to $5.3 billion is expected, which would continue the solid growth seen in recent quarters. Profit margins are also expected to remain stable. The GAAP operating margin for 2025 is estimated at up to 29.5 percent, while the non-GAAP margin is expected to be 44.5 percent in the best-case scenario. This suggests that Cadence will be able to maintain its profitability despite high investments in AI and new platforms. The company expects GAAP earnings per share of up to $4.07 and non-GAAP earnings per share in the range of $6.85 to $6.95. Operating cash flow is expected to be between $1.65 billion and $1.75 billion.
In my opinion, this forecast shows that Cadence continues to benefit greatly from demand for AI-powered development and simulation solutions. New products in particular, such as Cerebrus AI Studio and the Millennium M2000 supercomputer, are likely to help the market leader further expand its market position.
Source: Sales and Margin forecast
Looking at analysts' estimates, double-digit growth can also be observed here. There is no sign of a slowdown. Only a slowdown in revenue growth in 2028 could affect growth. This is hardly surprising, as the megatrends appear to be intact and the moats deep. Revenue could therefore be around $7.5 billion in 2028.
Source: Net Margin
There is also slight upside potential for margins. Excluding one-off effects, the net margin could rise to just under 39 percent by 2032. A net profit of over $4 billion would then be possible.
The HGI analysis has been showing positive momentum for Cadence Design Systems stock for some time now. However, it was not until July 2025 that the company achieved sustained top scorer status. In the High Growth Investing analysis, a minimum of eleven points is required for this.
Source: HGI Score
Particularly high scores were achieved in the categories of gross margin, debt, and Rule of 40 score—to be precise, the full three points. One point was also awarded for solid revenue growth of over 22 percent in the last twelve months and for a PEG ratio of 3.1.
A look at the history shows that growth has picked up again, which speaks in favor of the stock. However, there is no sign of particularly high growth. Only revenue growth of over 40 percent would have earned the full score.
The stock performed worst in the valuation. With an EV/sales ratio of 18.7, it is far from achieving even one point in the HGI analysis. For this, the stock is likely to trade at a multiplier of only 12 in the end. More on this in the following chapter.
At first glance, the valuation of Cadence stock appears high from a fundamental perspective: the expected price-earnings ratio (P/E) is over 50. The ratio of enterprise value to free cash flow (EV/FCF) is also very high at around 60, underscoring the strong valuation. This is particularly striking given that revenue growth for 2025 is estimated at only around 14 percent. With growth rates above 40 percent, the picture could of course be different.
Source: key metrics
Viewed objectively, Cadence Design Systems must first grow into its own valuation. A look at the potential EPS development and the corresponding P/E ratio shows that a P/E ratio of 21 could still be possible in 2033.
Source: EPS / PE
However, Cadence justifies the valuation with high margins, strong profitability, and extremely deep moats in a market with great future potential. Cadence Design Systems is a duopolist and a shovel seller to Nvidia, currently the hottest AI hardware producer on the market. The dependencies are significant, which is of enormous importance in a technology-driven market.
Cadence Design Systems stock are undoubtedly highly valued at present. This is reflected in a price-earnings ratio of around 50 and an EV/FCF of around 60 – especially given that revenue growth for 2025 is only around 14 percent, which is more moderate than in previous years. In the long term, however, growth is likely to remain in double digits well beyond 2030, as there are deep moats and intact megatrends. Investors are therefore paying a premium for the company's future prospects and its excellent business position. However, the valuation can also be justified by other factors. These include a robust and high-margin business model that relies on recurring revenue from software licenses, maintenance contracts, and IP products.
Not to be forgotten is the deep integration of the products into customers' development processes. This ensures high customer loyalty and thus increases the stability of revenue. Another key factor is Cadence's innovative strength. With products such as Cerebrus AI Studio for AI-assisted chip development, the Millennium M2000 supercomputer for accelerated simulations, and a steadily growing IP portfolio, the market leader is clearly positioning itself as a technological pioneer. Long-term trends such as AI, autonomous driving, cloud infrastructure, and the Internet of Things are thus being addressed at an early stage.
However, investors should bear in mind that the stock's high valuation leaves little room for disappointment. Declines in sales, delays in product development, or regulatory restrictions, for example in China, could have a significant short-term impact on the share price. This already happened in the spring of 2025, when the share price plummeted by over 25 percent. However, the share price quickly climbed back towards its all-time high. One reason for this may have been that the company's long-term prospects have not deteriorated despite short-term challenges.
Source: Cadence Design Systems target price
Analysts' opinions are also overwhelmingly clear. 76 percent of financial experts recommend buying the stock, while 21 percent vote to hold. Only 3 percent of analysts recommend selling. The average price target of $382 is 9.4 percent above the current price. For those who still consider the stock too risky at the current price, an alert could be worthwhile. A setback to the old lows of €250 could be a first mark to take another look at the stock.
The author and/or persons or companies associated with StocksGuide own or may own shares of Cadence Design Systems. This article represents an expression of opinion and does not constitute investment advice. Please note the legal information.