Key Takeaways:
- AI Infrastructure Boom: Design activity is accelerating across AI infrastructure, physical AI, and science AI applications.
- Price Projection: Based on current execution, CDNS stock could reach $349 by December 2027.
- Potential Gains: This target implies a total return of 23% from the current price of $284.
- Annual Return: Investors could see roughly 12% growth over the next 1.9 years.
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Cadence Design Systems (CDNS) delivered exceptional third-quarter 2025 results with strong momentum across all product categories and geographies.
The company exceeded expectations, with the backlog growing to over $7 billion, and raised full-year guidance to approximately 14% revenue growth and 18% EPS growth.
CEO Anirudh Devgan emphasized that the accelerating AI megatrend is driving unprecedented design activity across hyperscaler infrastructure, autonomous driving, and robotics.
- As AI drives exponential design complexity, Cadence is uniquely positioned with its comprehensive portfolio spanning EDA, IP, 3D-IC, PCB, and system analysis.
- The company’s IP business maintained strong momentum, now tracking over 20% growth for the second consecutive year.
- This growth stems from Cadence’s focus on AI and HPC at advanced nodes, its expansion of foundry partnerships with TSMC, Samsung, Intel, and Rapidus, and its superior PPA performance, which is driving customer adoption.
- Cadence expanded strategic partnerships in Q3, including a wide-ranging proliferation with Samsung across core EDA and system software.
- The company deepened its collaboration with TSMC to power next-generation AI flows supporting N2 and A16 technologies, with design-ready IP including HBM4 and LPDDR6 on N3P.
The hardware verification business delivered a record Q3, with significant expansion, especially among AI and HPC customers.
OpenAI expanded its commitment to Cadence’s Palladium emulation platform, while NVIDIA, Samsung, and Qualcomm presented SimAI success stories highlighting 5x to 10x improvement in verification throughput.
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What the Model Says for Cadence Design Stock
We analyzed Cadence’s transformation into the essential enabler of AI infrastructure buildout. The company benefits from multiple demand drivers as chips grow larger and more complex with each technology node.
Cadence’s comprehensive chip-to-systems portfolio positions it uniquely to capture growth across the three AI horizons: infrastructure AI (current focus), physical AI, including autonomous vehicles and robotics (emerging), and sciences AI (nascent).
Management invests roughly 70-80% in horizon one, about 20% in horizon two, and a few percent in horizon three.
The recently announced Hexagon D&E acquisition, including MSC Software, will strengthen Cadence’s system design and analysis business.
This brings industry-leading structural analysis and multi-body dynamics technologies, creating two strong pillars in SD&A: one focused on 3D-IC and chiplets, the other on physical AI and connected technologies.
Using a forecast of 12.9% annual revenue growth and 45.2% operating margins, our model projects the stock will rise to $349 within 1.9 years. This assumes a 34x price-to-earnings multiple.
That represents compression from Cadence’s historical P/E averages of 43x (one year) and 44.2x (three years). The lower multiple reflects prudent valuation despite strong fundamentals and provides a margin of safety.
Our Valuation Assumptions
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Our Valuation Assumptions
TIKR’s Valuation Model lets you plug in your own assumptions for a company’s revenue growth, operating margins, and P/E multiple, and calculates the stock’s expected returns.
Here’s what we used for CDNS stock:
1. Revenue Growth: 12.9%
Cadence delivered a strong Q3 performance with broad-based momentum. The company expects double-digit growth across all five product lines for 2025.
Management sees structural drivers from AI infrastructure buildout, with all Mag 7 companies and major merchant silicon vendors accelerating internal chip design.
The IP business should grow faster than the Cadence average, given its slightly lower profitability profile.
Hardware demand remains very strong, with visibility extending into 2026, though management maintains prudent guidance given shorter visibility windows compared to software.
2. Operating margins: 45.2%
Cadence demonstrates disciplined operational execution with strong margin performance. The company invests approximately 35% of revenue in R&D, with over 90% of total investment and headcount dedicated to engineering and customer support.
This focused approach enables Cadence to deliver breakthrough automation and productivity while maintaining healthy margins.
Management expects continued leverage as the AI-driven design activity scales.
3. Exit P/E Multiple: 34x
The market values Cadence at 36.8x earnings currently. We assume modest compression to 34x over our forecast period, below historical averages of 43-44x.
This conservative multiple accounts for execution risk and provides downside protection. As Cadence demonstrates resilient performance across its global portfolio and deepens strategic partnerships with market-shaping companies, the premium valuation reflects its essential role in AI infrastructure buildout.
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What Happens If Things Go Better or Worse?
EDA companies face technology transitions and customer spending cycles. Here’s how Cadence stock might perform under different scenarios through December 2029:
- Low Case: If revenue growth moderates to 10% and net income margins compress to 35.6%, investors still see a 23.8% total return (5.6% annually).
- Mid Case: With 11.1% growth and 37.8% margins, we expect a total return of 55.3% (11.9% annually).
- High Case: If AI infrastructure acceleration drives 12.2% revenue growth while Cadence maintains 39.7% margins, returns could hit 90.4% total (17.9% annually).
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The range reflects execution on AI design proliferation, successful navigation of geopolitical uncertainties, particularly in China, and continued technology leadership across the comprehensive product portfolio.
How Much Upside Does Cadence Design Stock Have From Here?
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All it takes is three simple inputs:
- Revenue Growth
- Operating Margins
- Exit P/E Multiple
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Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any stocks mentioned. Thank you for reading, and happy investing!
