AI-chip designer Cadence Design Systems slides on soft outlook

Cadence Design Systems (CDNS) delivered a strong fourth-quarter performance, surpassing expectations on both earnings per share (EPS) and revenue. The company reported adjusted EPS of $1.88, exceeding the consensus estimate of $1.83, and revenue of $1.36 billion, which was slightly above the expected $1.35 billion. This marked a 27% year-over-year revenue increase, while adjusted net income grew 37% to $515.7 million. However, the company issued cautious full-year 2025 guidance, projecting adjusted EPS between $6.65 and $6.75, below analyst expectations of $6.82, and revenue between $5.14 billion and $5.22 billion, also shy of the $5.24 billion consensus estimate.

Despite the solid quarterly results, the stock faced pressure due to its softer-than-expected guidance. Cadence’s backlog surged to a record $6.8 billion, with $2.6 billion in Q4 bookings—more than double the typical quarterly amount. However, management expects revenue growth of 11.6% in 2025, lower than the estimated 13%, with China projected to remain flat year-over-year. Analysts at Loop Capital reduced their price target on CDNS from $360 to $340 but maintained a Buy rating, citing confidence in the company’s long-term prospects. Similarly, KeyBanc remains bullish on the stock, noting the significant backlog expansion and suggesting that Cadence could potentially raise guidance later in the year.

Cadence continues to benefit from secular growth in artificial intelligence (AI) and semiconductor design, key drivers of its business. The company is deeply embedded in AI infrastructure, working with industry leaders such as NVIDIA, Qualcomm, and Marvell on next-generation chip designs. Its AI-powered tools, including Cadence Cerebrus and SimAI, are gaining traction, with over 750 tape-outs to date and 300 in the latest quarter alone. Additionally, strategic partnerships with foundries such as TSMC, GlobalFoundries, and Intel Foundry position Cadence well for sustained growth as semiconductor complexity increases. With demand for AI-driven design tools accelerating, the company remains a critical player in the high-end chip ecosystem.

Technically, CDNS stock is testing key support at the 50-day moving average around the $291 level. A failure to hold this level could see the stock slide towards the $255 area, given the descending triangle pattern forming in its price action. While the outlook for 2025 was weaker than expected, the broader AI-driven semiconductor cycle remains a compelling long-term narrative for the company. Investors will closely watch upcoming industry trends and any potential upward revisions to guidance, particularly as AI infrastructure spending continues to ramp up. Despite near-term volatility, Cadence’s dominant position in electronic design automation (EDA) and its growing AI-driven portfolio should provide a solid foundation for future growth.