CADENCE DESIGN SYSTEMS, INC. (CDNS): what the price requires
At today's price, CADENCE DESIGN SYSTEMS, INC. (CDNS) is priced for today's economics sustained for ~16.0 years. boothcheck doesn't publish a fair value or a price target; it shows what the price assumes, so you can judge whether that bar is too high.
Generated: 2026-07-13 · Source: https://boothcheck.com/report/CDNS
Headline
| Field | Value |
|---|---|
| Ticker | CDNS |
| Company | CADENCE DESIGN SYSTEMS, INC. |
| Current price | $376.03/sh |
What The Price Requires (Inversion)
The assumption today's price embeds, recovered by inverting the valuation.
| Field | Value |
|---|---|
| Inversion basis | whole-company |
| Operating margin today | 27.4% |
| Must persist for | 16.0y |
| Multiple paid | 70x operating income |
Solve inputs: computed at a 10.8% cost of capital; growth searched up to the 25% self-funding ceiling; each 1pp moves the implied horizon ~2.4 years.
Reconcile: at the x-ray's 9.3% required return this reads ~12.3 years; the models below use their own rates.
How unusual the bet is: high
| Reference | Value |
|---|---|
| vs own history | +0.35σ |
| cohort percentile (of 177 peers) | 92 |
| sustained it ~10 years at this level | 15% |
| implied end-window share | 0% |
Valuation X-Ray
Every valuation family lands below the price. The price therefore requires assumptions beyond what those standard frames encode.
How the valuation models price the stock relative to the market price. Price/FV above 1.0 means the market pays more than that lens defends (expensive); at or below 1.0 the lens can defend the price.
| Family | Median price/FV | Models | Reads |
|---|---|---|---|
| Asset | 6.89x | 4 | expensive |
| Earnings | 8.11x | 5 | expensive |
| Relative | 2.43x | 5 | expensive |
| Growth | 1.63x | 3 | expensive |
Families that call it expensive: Asset, Earnings, Relative, Growth
The models below discount at their own flat-beta convention rates (cost of equity 9.3%, WACC 9.3%); the inversion above states its own rate.
Per-Model Detail (n=17)
| Model | Family | FV | Price/FV | Applicable | Methodology |
|---|---|---|---|---|---|
| DCF Perpetual Growth | Growth | $154.49 | 2.43x | yes | FCF base $1.7B, growth 14% (input: historical growth), terminal g 4.0%, WACC 9.3%, 6yr projection |
| DCF Exit Multiple | Growth | $391.38 | 0.96x | yes | Exit EV/EBITDA: 59.8x / 61.8x / 63.8x (bear / base = today's held flat / bull), 6yr |
| Relative Valuation | Relative | $234.48 | 1.60x | yes | P/E 50.87x (blended: sector 35x + trailing (TTM) 88x), scenarios: 41.8x / 50.9x / 59.9x (bear / base = sector held flat / bull), EV/EBITDA 36.03x |
| Simple DDM | Growth | — | — | no | — |
| Two-Stage DDM | Growth | — | — | no | — |
| Simple Excess Return | Asset | $46.25 | 8.13x | yes | BV/sh $23.97, ROE (TTM) 17.8%, ke 9.3% |
| Two-Stage Excess Return | Asset | $63.42 | 5.93x | yes | 5yr excess ROE then converge to ke=9.3% |
| Discounted Future Market Cap | Growth | $230.10 | 1.63x | yes | Rev $5.5B, growth 14% (input: historical growth; tapered), Terminal P/S: 9.9x / 12.0x / 14.1x (bear / base = today's held flat / bull, cap 12x) |
| Peter Lynch Fair Value | Relative | $51.48 | 7.30x | yes | EPS $4.29, growth 7% (input: historical EPS growth), PEG=11.97 (Overvalued) |
| Margin Trajectory | Growth | — | — | no | — |
| Earnings Power Value | Earnings | $42.56 | 8.84x | yes | Normalized EBIT (5y avg op income, one-time charges added back) $1.25B × (1−22%) / WACC 9.3% → EPV (no growth) |
| Residual Income | Asset | $63.15 | 5.95x | yes | BV $23.97 + 5yr PV of (ROE (TTM) 17.8% − Kₑ 9.3%) × BV; BV grows 8.8%/yr |
| Graham Number | Asset | $48.10 | 7.82x | yes | √(22.5 × EPS $4.29 × BVPS $23.97) — Graham's conservative floor |
| EV/EBITDA Relative | Relative | $154.87 | 2.43x | yes | EBITDA $1.65B × sector EV/EBITDA 25.0x |
| FCF Yield | Earnings | $60.97 | 6.17x | yes | FCF $1429.9M / Kₑ 9.3% — zero-growth perpetuity |
| SBC-Adj FCF Yield | Earnings | $41.78 | 9.00x | yes | SBC-adj FCF $0.94B (FCF $1.43B − SBC $0.49B) capitalized at Kₑ |
| Ben Graham Formula | Earnings | $83.37 | 4.51x | yes | EPS $4.29 × (8.5 + 2×7.3%) × (4.4 / 5.3%) |
| ROIC-Justified P/B | Asset | $16.42 | 22.90x | yes | BV $23.97 × (ROIC 6.3% / WACC 9.3%) (excluded from median) |
| P/Sales Sector | Relative | $161.58 | 2.33x | yes | Revenue $5.53B × sector P/S 8.0x |
| PEG Fair Value | Relative | $47.26 | 7.96x | yes | EPS $4.29 × (PEG 1.5 × growth 7.3% (input: historical EPS growth)) → PE 11.0x |
| Earnings Yield | Earnings | $46.38 | 8.11x | yes | EPS $4.29 / required return 9.3% (Rf 4.3% + ERP 5.0%) |
| Funds From Operations Multiple | Relative | — | — | no | — |
| Clinical Phase NPV | Growth | — | — | no | — |
| Merton | Asset | — | — | no | — |
| V5 Mechanical | — | — | — | no | — |
Solvency
| Field | Value |
|---|---|
| Net cash | $1.6b |
| Net debt / NOPAT (after-tax) | -1.36x (net cash) |
| Net debt / operating income (pre-tax) | -1.07x (net cash) |
| Interest coverage | 12.3x |
| Share count CAGR (buyback) | -0.3% |
| Burning cash | no |
Bullet Takeaways
At $387.29 (as of June 27, 2026) the price pays about 72x company-wide operating income. The model reads that as a bet that operating growth holds near its self-funding ceiling for roughly 17 years. The near-term pace is within what Cadence already delivers; the demand is on how long it persists.
No valuation family reaches the price. Earnings-power methods sit near $42 to $61, peer multiples near $48 to $238, and even the most generous forward-growth model lands below the quote. The multiple sits at the very top of the peer distribution, well beyond the upper quartile.
The business backing the price is genuinely high quality: a record $8 billion backlog reported in Q1 2026, 19% revenue growth, net cash on the balance sheet, and recurring revenue recognized over time. The debate is not whether the business is good. It is whether 17 years of ceiling-rate compounding is a reasonable thing to pre-pay for.
Bull Case
Electronic design automation is one of the easier sectors to value qualitatively and one of the hardest to value with a multiple. The qualitative part is simple: every advanced chip in the world is designed on software from essentially two vendors, Cadence and Synopsys, and switching tools mid-design is close to unthinkable for a customer who has trained its engineers and committed its IP to a flow. Cadence's own 10-K frames the competitive ground as 'continuous technological innovation, the quality and differentiation of product and service offerings, the strength and stability of customer relationships, the ability to attract and retain top engineering talent' (FY2025 10-K, accession 0000813672-26-000016). That is the description of a business that competes on lock-in and talent, not price. The hard part is that the multiple has to price decades of that lock-in compounding, which is exactly where Cadence sits today.
The demand signal under the multiple is real and current. In Q1 2026 Cadence reported a record backlog of $8 billion, described as ahead of plan, on revenue of $1.47 billion that grew 19% year over year, the fourth consecutive quarter of beating estimates. Core EDA grew 18%, IP grew 22% on AI, HPC, and automotive workloads, and management called it the best hardware-emulation quarter in company history led by AI and HPC customers. The company raised its 2026 revenue-growth outlook to 17% and guided full-year revenue to $6.125 billion to $6.225 billion. A backlog of that size matters more here than in most software because Cadence recognizes a substantial portion of revenue over time, so today's bookings convert into multiple future years of visible revenue.
The balance sheet removes the usual objection to a richly valued compounder. Cadence carries net cash of about $1.56 billion with no gross debt, and interest coverage is not even a meaningful constraint at roughly 13x. Operating margin runs near 28%, and the model searches growth up to a 25% self-funding ceiling because the business generates enough cash to fund its own expansion, including the BETA CAE acquisition that broadened it into multi-domain engineering simulation under the System Design and Analysis category (FY2025 10-K). For a buyer who believes AI will keep multiplying chip complexity, and that complexity is what sells more Cadence licenses, the bull case is that the duration the price demands is not a stretch at all but a straight-line read on where semiconductor design is heading.
Bear Case
The bear case starts where the moat is thinnest at the edges, not the core. The core duopoly is secure, but Cadence's own filing names a specific erosion vector: China. The 10-K states that 'China's stated national policy to be a global leader in all segments of the semiconductor industry by 2030 has resulted in and may continue to cause increased competitive capability in China,' and flags Entity List customers and export controls as live constraints (FY2025 10-K, accession 0000813672-26-000016). EDA is precisely the chokepoint U.S. policy reaches for, and China is precisely the market most motivated to build a domestic alternative. The advantage being chipped at is not Cadence's technology lead today; it is the assumption that the lead is uncontested for the 17 years the price requires.
The second problem is what the methods say in chorus. No valuation family reaches $387.29. Earnings-power models land near $42 to $61, the asset and excess-return frames near $46 to $63, peer multiples near $48 to $238, and the most generous forward-growth DCF still sits below the price. The multiple is at the very top of the peer distribution, well beyond the upper quartile, and historically only about 15% of comparable fast-growers sustained growth at this level for even a decade. The price is not rich on one frame and cheap on another; it is rich on all of them at once. That is the signature of a price that has fully extrapolated a good thing.
The third risk is the recurring-revenue model cutting the other way. The same over-time recognition that gives the bull visibility also means, in Cadence's words, that 'a decrease in orders in a given period would negatively affect our revenue in future periods,' and that it 'may make it difficult for us to rapidly increase our revenue' (FY2025 10-K). The flywheel runs in reverse on a downturn. If AI design spending normalizes, if export restrictions widen, or if a customer's chip program slips, the backlog that looks like a fortress today becomes a slow-bleeding lagging indicator. At 72x operating income, the price has no cushion for that sequence. Each percentage point of cost of capital shortens the tolerable horizon by about 2.5 years, so a higher-rate environment alone would compress the bet meaningfully without any operational miss.
Valuation
The unusual thing about Cadence's X-ray is the unanimity. In most names the families disagree, and the disagreement is the information. Here they agree: not one family reaches the price. The earnings-power methods (Earnings Power Value near $43, FCF Yield near $61, SBC-adjusted near $42) sit at a fraction of the quote. The asset and excess-return frames land near $46 to $63. Peer multiples run from a Peter Lynch read near $51 up to a relative-valuation figure near $238. Even the forward-growth models, the ones built to capture compounding, top out below $402 on the exit-multiple DCF and well under the price on the perpetual-growth version.
So the price is not anchored to any standard method; it is anchored to duration. Inverting the $387.29 quote, the market is paying about 72x company-wide operating income, which solves to operating growth held near the 25% self-funding ceiling for about 17 years, computed at an 11% cost of capital. The rate the company must hit is within its recent track record; the stretch is entirely in how long that pace must persist. Two reference points frame how demanding that is. The multiple sits at the very top of the peer distribution, beyond the upper quartile, and only about 15% of comparable fast-growers sustained this level of growth for roughly a decade, let alone the 17 years implied. The sensitivity is the practical risk: each additional point of cost of capital trims the tolerable horizon by about 2.5 years. None of this says the business is bad, and the record backlog and net-cash balance sheet are real support. It says the price has already paid for an exceptionally long runway, and the buyer's edge has to come from believing that runway is even longer than 15% of fast-growers have ever managed.
Catalysts
The near-term catalysts are mostly confirmations rather than surprises, which fits a name priced for duration. Q1 2026 set the tone: EPS of $1.96 against a $1.91 estimate, revenue of $1.47 billion up 19%, a record $8 billion backlog described as ahead of plan, and a raised full-year outlook to 17% growth with revenue guided to $6.125 billion to $6.225 billion. Every segment grew double digits, with IP up 22% on AI, HPC, and automotive demand and what management called the best hardware-emulation quarter in company history. The next few prints are the test of whether that backlog keeps building or merely holds; with revenue recognized over time, the trajectory of new bookings matters more than any single quarter's recognized revenue.
The watch items are the bear vectors made concrete. New product cycles around the AI design agents introduced this year (ViraStack and InnoStack), the integration of the BETA CAE simulation acquisition, and any expansion of U.S. export controls or China Entity List actions would each move the thesis, the last most of all given how directly EDA sits in the policy crosshairs. Customer chip-program timing in AI and HPC is the demand input to watch, since a pause there would show up first in bookings and only later in revenue. For a price this dependent on a long runway, the catalysts that matter are less about beating a quarter and more about whether the multi-year demand picture stays intact.
Sources: Cadence Q1 2026 earnings beat (Meyka), Q1 2026 record backlog and AI innovations (GuruFocus), every segment grew double digits (TIKR), Cadence FY2025 10-K.
Peer Cohorts (Per Segment, With Filing Citations)
Electronic design (single operating segment) (reported)
- SNPS (SYNOPSYS INC)
- (no filing in the citation store)
- ADSK (AUTODESK, INC.)
- (no filing in the citation store)
- PTC (PTC Inc.)
- (no filing in the citation store)
- MANH (MANHATTAN ASSOCIATES, INC.)
- (no filing in the citation store)
- NTNX (NUTANIX, INC.)
- (no filing in the citation store)
- TDC (TERADATA CORP /DE/)
- (no filing in the citation store)
- DSGX (DESCARTES SYSTEMS GROUP INC)
- (no filing in the citation store)
- BLKB (Blackbaud, Inc.)
- (no filing in the citation store)
Methodology Note
- Priced-in inversion: the valuation is inverted on the current price to recover the operating-income growth, duration, and steady-state margin the price embeds (ROE for financials, FFO growth for REITs).
- Valuation x-ray: the valuation models, grouped into four families (asset, earnings, relative, growth). Each model is expressed as a price/FV ratio (distance from price), not a point fair-value estimate. The spread across families is the disagreement.
- Solvency: net cash/debt, net-debt-to-NOPAT, interest coverage, and share-count CAGR from EDGAR financials (net debt / FFO and fixed-charge coverage for REITs; regulatory-capital framing for financials).
- Peer cohorts: per-segment comparables with deep-linkable SEC filing citations.
Fundamentals sourced from SEC EDGAR filings. Current price from Databento. The priced-in inversion and valuation x-ray are computed by the boothcheck engine; narrative composed by AI from the structured data.