CDNS Cadence Design Systems
Best-in-class EDA moat, but $293 prices in perpetual perfection.
The story
Cadence is a best-in-class EDA franchise with deep switching costs and a critical role in semiconductor design. Revenue growth has accelerated to ~14% on AI chip demand, and operating margins have expanded to 33.4% TTM, validating the moat. The company is in late-maturity with durable but not infinite excess returns.
Keeping prior drivers broadly intact: TTM revenue growth of 14% and margin of 33.4% confirm the story. Nudged terminal growth from 3.5% to 4.0% (still below 4.78% risk-free) as AI-driven semiconductor design activity structurally lifts the addressable market. Sales-to-capital stays at 0.75, consistent with the 0.73 TTM observed. The ~$98 intrinsic vs $293 price gap remains: even best-in-class EDA at 34% margins and 14% growth cannot justify a 14x revenue multiple without assuming perpetual excess returns.
Value drivers
| Revenue growth (Y1) | 14.0% |
| Terminal growth | 4.0% |
| Forecast horizon | 10y |
| Target operating margin | 34.0% |
| Years to target margin | 5 |
| Sales-to-capital | 0.75 |
| Beta | 1.15 |
| Failure probability | 1.0% |
| Cost of capital (WACC) | 9.8% |
| Terminal WACC | 9.1% |
Valuation bridge
| PV of explicit FCFF | 8.32B |
| PV of terminal value | 19.91B |
| Equity value | 28.46B |
| ÷ shares → per share | $103.36 |
News
neutral -0.10 · 8 articles
- Wall Street Bulls Look Optimistic About Cadence (CDNS): Should You Buy?
- Cadence Design Systems (CDNS) Stock Still Looks Overvalued Despite AI Chip Demand
- Cadence Design Systems (CDNS) Following PCIe 6.0 Progress Has Fair Value Back In Focus
- What Sets Cadence Design Systems (CDNS) Apart After Its PCIe 6.0 Milestone?
- Synopsys Fell 11% This Year. Wall Street Expects It to Gain 50% in the Next 12 Months
- Synopsys' Core Engine Grew Far Slower Than Its Revenue
- How Is Cadence Design Systems’ Stock Performance Compared to Other Application Software Stocks
- 2 S&P 500 Stocks for Long-Term Investors and 1 We Turn Down
Projected free cash flow to the firm
| Yr | Revenue | Growth | Margin | NOPAT | Reinvest | FCFF | PV |
|---|---|---|---|---|---|---|---|
| 1 | 6.65B | 14.0% | 33.5% | 1.62B | 1.09B | 535.20M | 487.44M |
| 2 | 7.51B | 12.9% | 33.6% | 1.84B | 1.14B | 697.32M | 578.41M |
| 3 | 8.40B | 11.8% | 33.8% | 2.07B | 1.18B | 885.48M | 668.94M |
| 4 | 9.29B | 10.7% | 33.9% | 2.29B | 1.19B | 1.10B | 756.47M |
| 5 | 10.18B | 9.6% | 34.0% | 2.52B | 1.18B | 1.34B | 838.40M |
| 6 | 11.04B | 8.4% | 34.0% | 2.73B | 1.15B | 1.59B | 906.64M |
| 7 | 11.85B | 7.3% | 34.0% | 2.94B | 1.08B | 1.86B | 964.68M |
| 8 | 12.59B | 6.2% | 34.0% | 3.12B | 983.16M | 2.13B | 1.01B |
| 9 | 13.23B | 5.1% | 34.0% | 3.28B | 857.85M | 2.42B | 1.04B |
| 10 | 13.76B | 4.0% | 34.0% | 3.41B | 705.67M | 2.70B | 1.06B |
Key risks
- AI chip design hype cycle inflates near-term revenue expectations beyond sustainable levels
- Synopsys competitive pressure in key EDA segments limits pricing power
- Cloud-based EDA disruption from hyperscalers erodes the proprietary tool moat
Catalysts
- Sustained AI/accelerator chip design pipeline driving multi-year license growth
- Expansion into system design and digital twins broadening TAM