# Cadence Design Systems (CDNS) — InvestMoat Analysis

_Last analyzed: August 23, 2026_
_Asset class: equity · Canonical page: https://investmoat.com/stocks/cdns_

## Scores

| Dimension | Score (0–100) |
| --- | --- |
| Moat durability | 80 |
| Growth trajectory | 84 |
| Valuation | 78 |
| **Composite** | **84** |

Scores are computed deterministically from this asset’s data by the InvestMoat formula (see https://investmoat.com/llms.txt for methodology). Scores are not directly comparable across asset classes.

## Key stats

- **Ticker:** CDNS
- **Market Cap:** ~$87B

## Moat

Co-dominant EDA platform with structural lock-in across digital, custom/analog, verification, and system analysis flows used by every advanced chip designer.

### The EDA Duopoly Moat

Cadence's moat rests on **mission-critical design infrastructure that has compounded for 35+ years**:

- **Verification & Custom/Analog Leadership:** Cadence dominates analog/custom design (Virtuoso) and verification (Palladium emulation, Protium prototyping). Hardware emulation systems sell for $10–50M each and lock customers into multi-year refresh cycles; Q2 2026 was another record hardware quarter, with 12 new customers and hyperscaler expansions.
- **Disciplined Bolt-On M&A vs Synopsys's Mega-Deal:** Where Synopsys is digesting its ~$35B Ansys acquisition (closed July 2025), Cadence has bought focused, integratable assets — Hexagon's Design & Engineering business (~$3.16B, closed Feb 2026) for multiphysics, Secure-IC (Nov 2025) for embedded security IP, plus BETA CAE — and Q2 still printed Core EDA +18% organic, IP +40%, and System Design & Analysis +37% (Hexagon in the mix).
- **Cadence.AI Agentic Design Suite:** ChipStack, ViraStack, InnoStack, and the July 2026 AuraStack Super Agent (advanced packaging and PCB) extend agentic design across the full electronic-system flow — trained on telemetry from thousands of tape-outs, lifting tool intensity and ASP per design as AI-chip complexity escalates.

**Moat verdict:** Cadence's moat is highly AI-resilient: AI-silicon proliferation increases EDA tool intensity rather than disrupting it, and the Super Agent suite (now including AuraStack for packaging and PCB) turns Cadence's tape-out data advantage into an agentic-design product. The duopoly with Synopsys is structurally protected by tape-out risk aversion, foundry certification cycles, and decades of accumulated methodology IP. The main non-AI risk is geopolitical — the on/off China EDA export controls, now against a 15% China mix — which caps regulatory lock-in rather than the underlying design moat.

### Top competitors

- **[Synopsys (SNPS)](https://investmoat.com/stocks/snps):** The other half of the EDA duopoly, now with Ansys simulation.
- **Siemens EDA (SIE.DE):** Calibre verification and PCB design tools.
- **[Keysight Technologies (KEYS)](https://investmoat.com/stocks/keys):** RF and high-speed design simulation.

## Growth

Q2 2026 revenue of $1.584B (+24% YoY) beat the prior-quarter run-rate, with Core EDA +18%, IP +40% (Intel Star IP plus other semiconductor wins), and System Design & Analysis +37% (PCB, advanced packaging, Hexagon D&E). Management raised FY2026 guidance to $6.26–6.34B (~19% YoY at the midpoint), non-GAAP operating margin 43.75–44.75% (mid 44.25%), non-GAAP EPS $8.05–8.15 (mid $8.10), and operating cash flow of $2B. Record backlog is $8.1B ($4.2B converting within 12 months). Q3 is guided $1.595–$1.625B revenue (1–3% q/q, 19–21% y/y; CFO commentary Exhibit 99.02) and non-GAAP EPS $2.01–2.07. The 15–18% blended CAGR is held: the printed year is 19%, Core EDA +18% is the organic tell, and IP/SDA rates include Hexagon (closed Feb 2026) so they are not the multi-year base.

- **Revenue CAGR estimate:** 15–18%
- **Primary type:** TAM expansion
- **Margin trend:** expanding
- **Key risk (moderate):** The US rescinded its May 2025 China EDA export curbs in July 2025; the FY26 raise assumes those rules stay substantially similar. Re-imposition remains live. China was 15% of Q2 2026 revenue (13% in Q1; 9% in Q2 2025). A renewed ban on advanced-node Chinese designers would cut a low-teens share of sales with limited near-term offset, pressuring FY2027 growth toward 12% and compressing the multiple. July 2025 DOJ/BIS settlement obligations are still in force.
- **Drivers:**
  - Core EDA (digital + analog) — +18% YoY in Q2 2026; AI-portfolio demand across hyperscalers, incumbents, and startups; Cerebrus / ChipStack adoption rising (accelerating)
  - IP — +40% YoY in Q2 2026; Star IP, highlighted by a significant Intel agreement plus other semiconductor wins (accelerating)
  - System Design & Analysis — +37% YoY in Q2 2026; PCB and advanced packaging plus Hexagon D&E integration; AuraStack Super Agent launched July 2026 (accelerating)
- **Score derivation:** Base ~81 (15–18% blended CAGR, mid 16.5% — FY26 guide now 19% at the midpoint, decayed toward a mid-teens terminal) + 4 all-segment accelerating (Core EDA +18%, IP +40%, SDA +37% in Q2) + 4 margin expansion (Q2 non-GAAP OM 45.5%; FY mid 44.25%; FY26E Rule of 40 Metric ~63%) − 5 China re-restriction risk = 84. The prior derivation string added a deleted +3 TAM term and read 87; the formula never did.

## Valuation

Re-marked at the $326.13 close on September 25, 2026 (the last IM25 mark before the rebalance): 78 on the unchanged $270 / $390 / $500 ladder, from 80 at the $319 reference the text below was written at. Only the price moved; the ladder and the thesis are not re-underwritten here. At ~$319 (Friday August 21, 2026 close), CDNS trades at ~39× forward P/E on FY2026 non-GAAP EPS guidance of ~$8.10 — cheaper than the ~46× / ~$365 print on the July 18 card, after the stock sold off while the company raised the year. The stock sits well below the ~$404 consensus 12-month target and in the lower half of its ~$263–$417 52-week range. The EDA duopoly, 78/22 recurring mix (TTM 79%), $8.1B backlog, and FY26E Rule of 40 Metric ~63% still underwrite a premium multiple; the raise plus the derating is what moved the valuation score, not a change in the scenario ladder ($270 / $390 / $500 held).

| Multiple | Value | Note |
| --- | --- | --- |
| Trailing P/E (GAAP) | ~63× | Yahoo TTM ~$5.02 GAAP EPS; SBC + Hexagon intangibles still depress GAAP |
| Forward P/E (NTM) | ~39× | FY2026 non-GAAP EPS guide midpoint $8.10 |
| PEG Ratio | ~2.1× | fwd P/E ÷ ~19% FY26 revenue growth at the guide midpoint |
| Price / Sales (NTM) | ~14× | ~$87B cap / ~$6.30B FY26 revenue midpoint |
| Price / OCF | ~44× | ~$87B cap / $2B FY26 operating-cash-flow guide (no FCF figure in the release) |

At ~39× forward P/E, CDNS still screens as a premium compounder, but the multiple compressed from ~46× on the July 18 card as the stock fell from ~$365 to ~$319 while FY26 EPS was raised to ~$8.10. PEG ~2.1× and ~14× NTM sales are full, not distressed; the $8.1B backlog and 44%+ non-GAAP margin underwrite the premium. The valuation score moved because spot cheapened inside an unchanged $270 / $390 / $500 corridor, not because the corridor was rewritten. _(as of August 2026)_

## Price scenarios

### Bear — $270

US re-imposes China EDA curbs; AI-capex digestion slows hyperscaler in-house silicon programs; emulation hardware refresh delays push out revenue and the multiple de-rates toward the low-30s.

- US BIS reinstates the export restrictions it lifted in July 2025 and extends them to all China advanced-node designers, eliminating a low-teens share of Cadence revenue (China was 15% of Q2 2026) with limited 12-month geographic offset
- AI hyperscaler capex digestion slows custom-silicon programs (Google TPU, Meta MTIA, AWS Trainium), deferring Palladium and Protium emulation-hardware orders after a record Q2 hardware quarter
- FY2026 revenue misses the raised $6.26–6.34B guide and the forward multiple compresses toward ~33× on FY2026 EPS ~$8.10 as growth reverts toward 12%

### Base — $390

FY2026 lands inside the raised $6.26–6.34B / $8.05–8.15 guide; backlog holds near $8.1B; Core EDA stays mid-teens organic; Cadence.AI and Hexagon-aided SDA keep wallet share as AI-tool intensity rises.

- FY2026 revenue hits ~$6.30B with non-GAAP operating margin near 44% (FY26E Rule of 40 Metric ~63%), delivering non-GAAP EPS of ~$8.10 and validating the July 27 raise
- Record $8.1B backlog is sustained as new AI-accelerator programs (NVIDIA Rubin ecosystem, AMD MI400, hyperscaler ASICs, Intel Star IP) sign multi-year tool and IP licenses
- FY2027 revenue guidance of ~$7.2–7.5B with EPS ~$9.50 issued at year-end, supported by Super Agent adoption and 3D-IC analysis demand, holding the multiple near ~41× forward

### Bull — $500

AI-silicon proliferation drives EDA tool intensity ~2× per design; Cadence wins share at 2nm/1.4nm verification during Synopsys's Ansys integration; emulation cycle extends and the multiple expands toward ~52× forward.

- 3D-IC packaging and chiplet adoption push Cadence.AI and System Design & Analysis toward 25%+ growth as multiphysics + silicon integration becomes a standard tape-out requirement; AuraStack becomes a default packaging flow
- Cadence captures advanced-node verification share from Synopsys during the multi-year Ansys integration window, lifting organic Core EDA growth above 18%
- Operating margin expands toward 47% by FY2027 as recurring-revenue mix and agentic-AI productivity tools re-rate the multiple toward best-in-class software peers

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