Nasdaq-100® Inside the Index: Cadence Design Systems (CDNS)

Business Model & Revenue Drivers

Chip Design Software on Multi-Year Licenses

Cadence makes electronic design automation (EDA) software, the programs engineers use to lay out a chip’s circuits and test the design before it goes to a factory. That business, which Cadence reports as Core EDA, made up 70% of FY2025 revenue (per company disclosures). Semiconductor IP (ready-made, silicon-proven circuit blocks such as memory and connection circuits) made up 14%, and System Design and Analysis (software for circuit boards, chip packaging and physics simulation) made up 16%.

Most revenue is recurring, because customers sign multi-year software license agreements (per Bloomberg research). In Q2 2026, Core EDA revenue grew 18% year over year, IP grew more than 40% on demand for Cadence’s Star IP products, and System Design and Analysis grew 37% (per company disclosures).

SHARE OF REVENUE BY PRODUCT CATEGORY (FY2025)

• Core EDA software: 70%
• IP circuit blocks: 14%

Competitive Moat

Market Share, Research Spending and Factory Partners

Bloomberg research estimates Cadence holds about 34% of the global EDA market as of September 2026, and names Synopsys as a competitor. Cadence spent 33.4% of its FY2025 revenue on research and development.

Samsung Foundry, Samsung’s contract chip-making business, expanded a multi-year partnership with Cadence for 2-nanometer AI chips in May 2026, and TSMC, the Taiwan chip manufacturer, expanded its partnership in September 2026 (per Bloomberg research). According to company disclosures and Bloomberg research, that market share, the multi-year license base and those manufacturer partnerships may create barriers to entry for some competitors.

GLOBAL EDA MARKET SHARE (SEPT. 2026)

• Cadence: ~34%
• Rest of market: ~66%

Operating Strengths

Three Operating Measures

45.5% ADJ. OP MARGIN (Q2 2026)
Adjusted (non-GAAP) margin leaves out stock-based pay and acquisition charges; GAAP operating margin was 28.2% in FY2025 (per Bloomberg research).

+24% REVENUE GROWTH (Q2 26 YOY)
Revenue reached $1.58B in Q2 2026, and operating cash flow was $990.7M in the first half of 2026 (per company filings).

50%+ ADVANCED DESIGNS ON CEREBRUS
Share of advanced-node designs (made on the newest, smallest chip processes) using Cadence implementation tools that also use Cerebrus, its AI layout tool (per Bloomberg research).

Growth Catalysts

AI Agents for Chip Design

ChipStack can draft chip design code from a written prompt. Cadence launched its ChipStack AI Super Agent in February 2026 to help engineers design, debug, verify and sign off chips (per company disclosures and Bloomberg research). On September 22, 2026, it added an RTL Generation Agent, which writes the front-end digital design (the code describing how a chip’s logic behaves) from plain-language prompts (per Bloomberg research).

• NVIDIA. In June 2026, Cadence expanded ChipStack to what it calls Level-5 full autonomy, working with NVIDIA and using NVIDIA’s Nemotron AI models (per Bloomberg research)
• AI-enabled tools. Bloomberg research projects the AI-enabled design portfolio could add about $4.1B in cumulative sales through 2032, including tools for stacked chips
• Guidance and estimates. After Q2, management raised FY2026 revenue guidance to $6.26B–$6.34B (company guidance), and Bloomberg consensus estimates expect $7.17B in FY2027

Historical Context

Revenue From FY2021 to the Last 12 Months

+77% REVENUE GROWTH, FY2021 TO FY2025

• FY2021: $2.99B
• FY2022: $3.56B (+19% YOY)
• FY2023: $4.09B
• FY2024: $4.64B
• FY2025: $5.30B (+14% YOY)
• TTM: $5.84B

SOURCE: CADENCE FORM 10-K FILINGS, CADENCE SEC FILINGS ARCHIVE, BLOOMBERG RESEARCH

Revenue rose from $2.99B in FY2021 to $5.30B in FY2025, and reached $5.84B over the trailing 12 months (per Bloomberg research). Adjusted earnings per share more than doubled over the same years. Bloomberg research also finds Cadence’s revenue growth outpaced semiconductor industry R&D spending in four of the last five years.

ADJUSTED EPS (FY2021 TO FY2025)
$3.29 → $7.14  |  2.2×

FREE CASH FLOW (FY2021 TO FY2025)
$1.04B → $1.59B  |  +53%

GAAP OPERATING MARGIN (FY2022 TO FY2025)
30.1% → 28.2%  |  −1.9 pts

Cadence spends about a third of its revenue on research. Its tools now use AI agents to help draft chip designs.

Valuation & Investment Thesis

The Multiple and the Balance Sheet

At $316.58 on 9/24/2026, the shares trade at approximately 36.9× forward earnings (per Bloomberg research). Cadence pays no dividend and ended FY2025 with $3.0B in cash and $2.67B of debt.

Bloomberg consensus estimates put FY2026 revenue at $6.31B, in line with the midpoint of company guidance. At approximately 36.9× forward earnings, investors may consider whether growth in AI-driven chip design supports current valuation levels.

Key Risks

What Could Change the Story

• China export rules. Potential US bans on sales of chip design software to China could delay or reduce spending by Chinese customers (per Bloomberg research)
• Chip industry cycles. Semiconductor downturns and a concentrated customer base could affect spending on design tools (per Bloomberg research)
• Competition. Cadence faces ongoing competition from Synopsys in chip design software (per Bloomberg research)
• AI shifts. AI agents that automate engineering work may move software value to other layers over time, though Bloomberg research sees no immediate threat to revenue
• Valuation. At about 36.9× forward earnings, the shares could see a lower multiple if growth expectations are revised down (per Bloomberg research)