Cadence Systems slips in after hour trade as AI chip play outlook disappoints
2min read Cadence Design Systems (CDNS) reported strong financial results for Q2 2024, with adjusted earnings per share (EPS) of $1.28, exceeding the consensus estimate of $1.22. The company posted revenues of $1.06 billion, surpassing analyst expectations of $1.04 billion and marking an 8.6% year-over-year increase. The growth was driven by robust demand from AI, hyperscale, and automotive customers, highlighting the successful momentum of their Cadence.AI portfolio and next-generation Z3/X3 hardware systems.
While CDNS topped revenue and EPS expectations, its guidance was light which led to the stock sliding 16 points in after hours trade. CDNS has been picked up with other AI chip plays like SNPS and treated to a hefty valuation with its shares trading at 41x forward earnings. This has placed pressure on the company to produce stellar results to maintain the lofty valuation. The results and outlook fell short, leading to some selling pressure.
Revenue from product and maintenance reached $960.5 million, slightly below the expected $979.3 million but still representing a 4.1% year-over-year increase. Services revenue saw a significant surge, climbing 86% year-over-year to $100.2 million, far exceeding the anticipated $68.4 million. The company reported a non-GAAP operating margin of 40%, down from 42% in Q2 2023 but above the estimated 39.1%. Non-GAAP net income was $350.7 million, a 5.1% increase from the previous year and higher than the consensus estimate of $336.8 million.
For Q3 2024, Cadence provided guidance with EPS expected to range between $1.39 and $1.49, below the consensus estimate of $1.60. Revenue is projected to be between $1.165 billion and $1.195 billion, placing the midpoint below the consensus of $1.19 billion. The company also anticipates a non-GAAP operating margin between 40.7% and 42.3%. These projections suggest cautious optimism amidst a challenging macroeconomic environment.
Cadence also updated its full-year 2024 guidance, now expecting adjusted EPS to range between $5.77 and $5.97, slightly narrowing the previous forecast of $5.88 to $5.98. Revenue for the full year is anticipated to be between $4.60 billion and $4.66 billion, an increase from the earlier forecast range of $4.56 billion to $4.62 billion. The company maintains a strong backlog of approximately $6.0 billion, indicating solid future revenue streams.
GAAP financial metrics also showed improvement, with a diluted net income per share of $0.84 in Q2 2024 compared to $0.81 in Q2 2023. The GAAP operating margin decreased to 28% from 31% in the previous year. For the full year, Cadence expects GAAP diluted net income per share to range between $3.82 and $4.02, and a GAAP operating margin between 29.7% and 31.3%.
Cadence’s strong performance in Q2 and its solid outlook for the remainder of 2024 reflect the ongoing demand for its innovative technologies. CEO Anirudh Devgan expressed confidence in the company’s future, citing the expanding demand from an increasing foundry ecosystem. CFO John Wall echoed this sentiment, noting that the robust first half of the year positions Cadence for continued growth in the latter half of 2024.