A toll-booth on the AI-silicon boom with 86% gross margins and an $8B backlog — but priced for perfection at ~42x forward earnings while the agentic-AI upsell that justifies the multiple is not yet in the model and a fresh DOJ guilty plea caps the China optionality. Quality is not the question; the entry price is.
| Date | Type | What happened | Source |
|---|---|---|---|
| 2026-08-10 | editorial note | Valuation figure revised: $387 → $338.20Valuation moved from $387 (deep-dive-2026-06-23.md) to $338.20 (deep-dive-2026-08-10.md). | dossier |
| 2026-08-10 | editorial note | Margin figure revised: $361.5M → 10%Margin moved from $361.5M (deep-dive-2026-06-23.md) to 10% (deep-dive-2026-08-10.md). | dossier |
| 2026-08-10 | editorial note | Revenue figure revised: $5,296.8M → $1,584.5MRevenue moved from $5,296.8M (deep-dive-2026-06-23.md) to $1,584.5M (deep-dive-2026-08-10.md). | dossier |
| 2026-08-10 | editorial note | Verdict changed: A toll-booth on the AI-silicon boom with 86% gross margins and an $8B backlog — but priced for perfection at ~42x forward earnings while the agentic-AI upsell that justifies the mult…Before (deep-dive-2026-06-23.md): A toll-booth on the AI-silicon boom with 86% gross margins and an $8B backlog — but priced for perfection at ~42x forward earnings while the agentic-AI upsell that justifies the multiple is not yet in the model and a fresh DOJ guilty plea caps the China optionality. Quality is not the question; the entry price is. After (deep-dive-2026-08-10.md): The de-rate the June dossier warned about arrived early and for the exact reason it named — an open-weight model designed a chip without them. The business answered with its best quarter ever (+24%, record $8.1B backlog, the largest guide raise in company history, a landmark Intel 14A engagement) and the stock still sits 19% below its June high. At 41.8x FY2026 non-GAAP and 67x trailing GAAP, with China back to 15% of revenue and a BIS rule un-suspending on 2026-11-09, the cushion is thin but no longer absent. Closer to interesting than in June; not yet cheap. | dossier |
The verdict
The de-rate the June dossier warned about arrived early and for the exact reason it named — an open-weight model designed a chip without them. The business answered with its best quarter ever (+24%, record $8.1B backlog, the largest guide raise in company history, a landmark Intel 14A engagement) and the stock still sits 19% below its June high. At 41.8x FY2026 non-GAAP and 67x trailing GAAP, with China back to 15% of revenue and a BIS rule un-suspending on 2026-11-09, the cushion is thin but no longer absent. Closer to interesting than in June; not yet cheap.
Primary sources
SEC filings
Earnings calls
Source documents — open to read in full
Q2 2026 printed strong and the guide was raised hard. Revenue $1,584.5M, +24.2% YoY; GAAP diluted EPS $1.33; non-GAAP EPS $2.11; record backlog $8.1B; FY2026 guide lifted from $6.125–6.225B / $7.85–7.95 non-GAAP EPS to $6.260–6.340B / $8.05–8.15 — what CEO Devgan called "the highest raise we ever had".
An open-weight model designed a chip without them, and the tape noticed. On 2026-07-17 Moonshot AI released Kimi K3, a 2.8-trillion-parameter open-weight model that autonomously ran a full chip-design flow — architecture through verification — on open-source EDA tools only, closing timing at 100 MHz on a 4 mm² block using the Nangate 45nm library. CDNS fell ~9.5% that day; a six-day slide erased ~$15B of market value and took the stock −21.2% from its June 1 close.
The de-rate happened. ~$387 (2026-06-18) → $338.20 (2026-08-10). That is −12.6% from the June dossier's price and −18.8% from the $416.39 all-time high. Trailing 52-week price change is now −3.78%; Market capitalisationThe share price multiplied by the number of shares. What the market says the equity is worth. $93.1B vs the June dossier's ~$105B estimate.
Intel Foundry — a multi-year 14A engagement, the first real crack in a twenty-year weak spot. Cadence signed a multi-year agreement covering DTCO on Intel 14A, agentic EDA flows and design IP, plus deepened Samsung Foundry (2nm/3D-IC) and a new Rapidus agentic-AI integration. Devgan: "Intel is a company we tried to work closer for a very long time… this is like a 10- or 20-year-old problem".
China nearly doubled — the fragile leg got bigger, not smaller. $236.2M, +96% YoY, 15% of revenue (from 9% a year ago); H1 $425.6M, +64%. Part of this is a base effect — Q2 2025 was suppressed by the May–July 2025 BIS EDA licence requirement, which the filing states explicitly — but the exposure the bear case rests on is now materially larger.
A new, dated regulatory cliff. BIS's 2026-09-29 interim final rule extending Entity-List restrictions to 50%-or-more-owned affiliates was suspended on 2025-11-11 for one year — expiring 2026-11-09 absent extension. The FY guide explicitly assumes controls "remain substantially similar for the remainder of the year".
The structural thesis stands, and one leg of it strengthened. The duopoly toll-booth is intact: 84.9% gross margin, no customer ≥10% of revenue, 78% recurring, ~$8.1B contracted-but-unsatisfied performance obligations, all three product categories growing double-digit. The moat widened competitively — Intel, Samsung and Rapidus all deepened this quarter, at exactly the accounts where Cadence was historically weakest.
The June dossier's contrarian call was right, and right early. Lens 12 of the prior dive named the non-obvious risk explicitly: "if AI super-agents genuinely collapse the number of engineering hours needed to design a chip, the long-run per-design seat/license base could shrink." Four weeks later that exact scenario got a public demonstration and cost the stock $15B. The thesis did not break — but the market has now started pricing the risk the prior dive said "almost no one is underwriting."
What did not hold: the balance-sheet cleanliness read. The June dive said inventory (+4.8%) growing far below revenue was evidence of no channel stuffing. Inventory is now +28.6% YTD against +21% H1 revenue. Management's explanation is credible and favourable — hardware is supply constrained, "building systems as quickly as we can to deliver against the backlog" — but the metric flipped sign and it should be watched, not waved through (Lens 10).
Unchanged in substance; see the previous dossier. One update: the Hexagon D&E purchase price finalised at $3,101.0M total consideration ($2.2B cash + 3.2M shares worth $902.2M), net $2.9B of cash acquired, allocated to $2,147.2M goodwill + $1,248.0M acquired intangibles. Revenue mix is now 78% recurring / 22% up-front, and management guides ~80/20 for the full year.
the previous dossierOne material addendum that belongs here rather than a re-run: the hardware line is now supply-constrained, not demand-constrained. CFO Wall: "it still remains supply constrained by customer demand rather than demand constrained. And we're building the systems as quickly as we can to deliver against the backlog". That is the direct cause of the inventory build in Lens 10.
Two opposing moves landed in the same six weeks.
The moat widened, commercially. The foundry tie — the thing that makes an EDA vendor structurally hard to displace — got materially stronger in one quarter:
The moat was publicly challenged, technically. Kimi K3 is the first credible demonstration that an agentic model plus free tooling can traverse the whole flow unaided. Management's rebuttal is specific and, on the facts available, fair: the block was ~4 mm², on a 45nm library (circa 2008), at a clock 20–30x below current frequency, and it still needed EDA tools to do it — they were just open-source ones. Devgan: "to really do real designs, people use Cadence."
The honest read on the moat: the demonstration does not threaten the 3nm/2nm signoff business where the money is. It threatens something subtler — the narrative that EDA is un-substitutable, which is what the multiple is paying for. And it hands a state-backed Chinese EDA cohort (Empyrean, X-EPIC, Primarius) a proof-of-concept template for the trailing-edge and emerging-market design work that is exactly where domestic substitution starts. The moat at the leading edge is intact and arguably wider. The moat at the perimeter is now demonstrably permeable, and the perimeter is where share loss begins.
Pricing power / value capture: management's answer is the "Three-Layer Cake" — compute and data at the bottom, physically-accurate solvers in the middle, AI agents and orchestration on top — with the claim that agentic AI is a "demand accelerator" because agents invoke the middle-layer engines more often, not less. That is a coherent theory of value capture. It is still a theory: no consumption-pricing model has been disclosed, and agentic revenue is not in the guide.
Cadence remains one reportable operating segment; product categories are revenue-mix disclosure only, with no segment operating income.
By product category, Q2:
| Category | Q2 2026 | Q2 2025 | Derived $ (Q2 2026) | Derived YoY | Management's cited YoY |
|---|---|---|---|---|---|
| Core EDA | 68% | 71% | ~$1,077M | ~+19% | +18% |
| Semiconductor IP | 15% | 13% | ~$238M | ~+43% | "over 40%" |
| System Design & Analysis | 17% | 16% | ~$269M | ~+32% | +37% |
| Total | 100% | 100% | $1,584.5M | +24.2% | +24% |
Derived $ and derived YoY are — the filing discloses whole-percent shares only, so the arithmetic carries ±1pt rounding error. Management's own growth rates are and should be preferred where they differ.
Read: Core EDA's share fell 71%→68% for the second consecutive period. That is not Core EDA weakening (+18–19% is a fine number) — it is IP and SD&A outgrowing it, the first genuinely three-engine quarter this company has printed. SD&A includes the acquired Hexagon D&E business, so its 37% is inorganically flattered; IP's 40%+ is organic and management volunteered a caution against annualising it: "IP revenue can be timing dependent from quarter-to-quarter… I wouldn't annualize any one quarter". Recurring revenue grew ~24%, of which roughly 4 points was Hexagon — ex-acquisition recurring growth is "high teens to 20%" on management's own normalisation.
By geography, Q2 2026 vs Q2 2025:
| Region | Q2 2026 $M | % of total | YoY | Q2 2025 % | Read |
|---|---|---|---|---|---|
| United States | 656.1 | 42% | +11% | 46% | Slowest grower, share still falling |
| China | 236.2 | 15% | +96% | 9% | Base effect + real demand; the policy-fragile leg is now 1.7x larger as a share |
| Other Asia | 321.8 | 20% | +35% | 19% | |
| EMEA | 243.3 | 15% | +22% | 16% | |
| Japan | 104.7 | 7% | +22% | 7% | |
| Other Americas | 22.3 | 1% | −43% | 3% | Design-services timing; immaterial |
| Total | 1,584.5 | 100% | +24% |
The single most consequential line in this table: US share fell 46%→42% while China rose 9%→15%. The revenue base is migrating toward the geography with a dated regulatory cliff on it.
The print [all research-layer: filings/10-q-2026-q2.md unless noted]:
| Q2 2026 | Q2 2025 | Δ | |
|---|---|---|---|
| Revenue | $1,584.5M | $1,275.4M | +24.2% |
| — Product & maintenance | $1,430.7M | $1,170.5M | +22.2% |
| — Services | $153.8M | $104.9M | +46.6% |
| Gross margin | 84.90% | 85.56% | −66bps |
| GAAP income from operations | $450.3M | $241.8M | — |
| GAAP operating margin | 28.42% | 18.96% | (prior year carried the $128.5M BIS/DOJ charge; ex-charge Q2 2025 was ~29.0%) |
| GAAP net income | $367.1M | $160.1M | +129% (flattered — see below) |
| GAAP diluted EPS | $1.33 | $0.59 | — |
| Non-GAAP EPS | $2.11 | n/a | |
| R&D | $531.3M (33.5% of rev) | $442.1M (34.7%) | −115bps intensity |
| SBC | $146.9M (9.3% of rev) | $118.3M (9.3%) | flat as % |
| Operating cash flow | $635M | — |
Versus consensus — and the outlets disagree. Quiver Quantitative reports EPS $2.11 vs $2.10 estimate (a $0.01 beat) and revenue $1,584.5M against a $1,608.5M estimate — i.e. a revenue miss. Investing.com reports the same EPS beating a $2.05 consensus by $0.06. Zacks/Yahoo characterise it as surpassing both EPS and revenue estimates. These are not reconcilable from public sources and I am not resolving them. The defensible statement: EPS beat on every version; the revenue line was at or slightly below the highest published estimate, and management's own metric — "all key metrics exceeding our guidance" — refers to guidance, not Street consensus.
Guidance — raised, twice over:
| Metric | FY2026 (new, 2026-07-27) | FY2026 (old, 2026-04) | Q3 2026 |
|---|---|---|---|
| Revenue | $6.260–6.340B (~19% growth) | $6.125–6.225B (~17%) | $1.595–1.625B |
| Non-GAAP EPS | $8.05–8.15 (mid $8.10) | $7.85–7.95 | $2.01–2.07 |
| GAAP EPS | $4.76–4.86 (mid $4.81) | — | $1.11–1.17 |
| Non-GAAP op margin | 43.75%–44.75% | — | 43.5%–44.5% |
| GAAP op margin | 27.75%–28.75% | — | 27.5%–28.5% |
| Operating cash flow | ~$2.0B | — | — |
Guidance carries an explicit caveat: it "contains the useful assumption that export control regulations that exist today remain substantially similar for the remainder of the year." Buyback intent stated for the first time as a formula: ~50% of free cash flow in 2026 (H1 tracked at 45% — $400.0M returned against $889.3M Free cash flowCash left after paying to run and maintain the business. Unlike profit, it is hard to flatter with accounting choices. ).
Note the Q3 sequential margin step-down — non-GAAP 45.5% actual → 43.5–44.5% guided. Management attributes it to $20–25M of H2 investment in the Hexagon D&E integration and the Intel engagement, with margin recovery promised for 2027. This is the first guided sequential margin decline of this cycle and it is spend-driven, not demand-driven.
Backlog / RPO. $8.1B contracted-but-unsatisfied at 2026-06-30 (vs $8.0B at Q1, $7.8B at YE2025), including $0.9B of non-cancelable commitments; 58% recognised within 12 months, 40% in months 13–36; current Remaining performance obligationsRevenue a company has already signed contracts for but has not yet delivered or booked. ~$4.2B. Backlog grew ~1% QoQ while revenue grew 24% YoY — which looks like deceleration until you take management's framing: 2026 is a low year in the three-year renewal cycle, H1 bookings were up ~55% YoY (an analyst's uncontested figure on the call), and "normally, first half, we draw down on our backlog, but this year has been good growth". Both readings are defensible; I am flagging the metric, not calling it.
Balance-sheet flags:
Market reaction: +4.37% on the release. But that bounce came off a stock already ~21% below its June 1 close with RSI near 30. A beat-and-raise of this size recovering only 4% is itself information: the market is no longer paying for the earnings, it is repricing the multiple.
The Q2 2026 transcript is now ingested at transcripts/2026-q2.md [source: AlphaStreet, 2026-07-27]. The June dive had zero transcripts and had to source sentiment entirely from ``. Sentiment trend vs the prior three-to-four calls:
Net sentiment: more confident and more specific than any prior call, with one new defensive front. The credibility positive from June holds — they raised hard without putting un-monetised agentic revenue in the number.
| Company | Ticker | Mkt cap | EV/Sales | EV/EBITDA | P/E (fwd) | P/E (trail) | P/FCF | Div |
|---|---|---|---|---|---|---|---|---|
| Cadence | CDNS | $93.14B | 16.20x | 45.17x | 39.52x | 67.44x | 55.65x | 0% |
| Synopsys | SNPS | n/a — not re-sourced this run | ~11x NTM | ~24x NTM | ~30–32x | n/a | n/a | 0% |
| Siemens EDA | (SIEGY) | n/a — segment | n/a | n/a | n/a | n/a | n/a | n/a |
| Ansys | — | n/a — inside SNPS since Jul 2025 | — | — | — | — | — | — |
CDNS row . Synopsys row carried unchanged from the June dossier — stale by ~7 weeks and not re-verified this run; do not trade the spread off it.
Cross-check on the CDNS row (this is the useful part). Three independent reconciliations between my primary-filing extraction and the quoted market data all tie:
our figures = $5.838B; $94.26B Enterprise valueWhat it would cost to buy the whole company: its market value plus its debt, minus the cash you would get with it. Often very different from market cap. / $5.838B = 16.15x vs quoted 16.20x ✓our figures = $1.679B vs the quoted $1.68B ✓The extraction is sound. Note the 41.8x figure used elsewhere in this dossier is $338.20 ÷ FY2026 guided non-GAAP EPS $8.10; the quoted "forward P/E 39.52" implies ~$8.56 of EPS and is therefore an NTM or FY2027-blended figure, not the company's FY2026 guide. Both are stated so the reader can see which is which.
Moves >5% since the 2026-06-23 boundary:
| Date | Move | Cause |
|---|---|---|
| 2026-07-17 | −9.47% | Moonshot Kimi K3 open-weight model autonomously completes a chip design on open-source EDA only |
| 2026-07-13 → 2026-07-20 | −14% over 6 sessions, ~$15B of market cap; −21.2% from the June 1 close | Continuation of the above; RSI ~30, among the most oversold large-caps in tech |
| 2026-07-27 (post-close) | +4.37% | Q2 beat-and-raise |
Price path: $416.39 ATH (2026-06-02) → ~$387 (2026-06-18, June dossier price) → the July slide → $338.20 (2026-08-10). Trailing 52-week price change −3.78% — a name that was +45% YoY at the June dive is now flat-to-down over a year.
The structural change to the catalyst list. The June dossier named four drivers: bookings/backlog + guidance raises; AI-narrative beats; China/export headlines; AI-capex sector beta. A fifth now sits at the top: credible public demonstrations that AI reduces the need for licensed EDA. That is a new category of downside catalyst — it is not earnings-sensitive, not guidable, not defensible by a good quarter, and it can recur at the cadence of frontier-model releases (which is roughly monthly). Note that a 24%-growth beat-and-raise recovered only 4.37% of a 21% drawdown: the earnings channel is now a weaker lever on this stock than the narrative channel. That asymmetry is the single most important thing this refresh found in the tape.
Dated forward catalyst added: BIS 50%-affiliate rule suspension expires 2026-11-09.
CEO Anirudh Devgan and CFO John M. Wall both in seat; Wall signed the 2026-07-27 Form 8-KA filing for something that happened between reports and matters enough to tell shareholders now.. No management change, no departure, no governance event surfaced in the window.
Capital allocation — now stated as a rule. For the first time management committed to a formula: ~50% of free cash flow to buybacks in 2026. Execution: Q2 580k shares for $200.0M; H1 1,251k shares for $400.0M (vs 1,968k / $525.0M in H1 2025 — fewer dollars deployed at a lower price, worth noting). Authorization remaining fell to $1.0B from $1.4B at YE2025. No dividend.
M&A engine: paused. No new acquisition announced since Hexagon closed 2026-02-23. Transaction costs fell to $2.8M in Q2 from $4.0M a year prior — consistent with a digestion year, and consistent with the DOJ-probation constraint the June dive flagged.
One judgment call to credit: management raised the guide by the largest increment in company history in the same quarter the stock fell 21% on an existential-sounding narrative — and still did not put un-monetised agentic revenue into the number to defend the story. They also volunteered three separate caveats (low renewal year, don't annualise IP, H2 margin dip). That is disciplined behaviour under narrative pressure and it is the strongest evidence in this refresh that the guide is real.
Every figure labeled. The books remain clean; three items changed grade since June.
1. Net income quality — the headline growth is doubly flattered. (NEW, and the most useful finding here.) Q2 GAAP net income "+129%" is not an operating result. Two distinct distortions:
Strip both: pre-tax income ex-investment-gains was $438.3M vs $242.2M. Still a genuinely strong +81%, but score the operating line (+24% revenue, 28.4% GAAP op margin), not the net-income line. Also note interest income collapsed to $9.9M from $26.0M (−62%) as the Hexagon cash left the balance sheet — a real, recurring ~$16M/quarter headwind that the investment gain happens to mask this quarter.
2. Goodwill and intangibles — grade raised from "rising risk" to the primary balance-sheet exposure. Goodwill $4,914.8M (from $2,749.1M at YE2025) plus acquired intangibles net $1,874.5M (from $718.2M) = $6,789.2M, equal to 56.2% of total assets and 99.0% of shareholders' equity. Total amortization of acquired intangibles ran $79.9M in Q2 vs $23.7M a year ago (3.4x), and the filing schedules $158.1M for the remainder of 2026, $294.8M in 2027, $287.5M in 2028. This is a permanent, disclosed, multi-year GAAP earnings drag and the mechanical reason the GAAP/non-GAAP gap widened to $3.29/share on the FY guide. If SD&A growth disappoints, the impairment exposure is now roughly the size of the equity base.
3. Inventory — flag flipped, then explained. $390.4M, +28.6% YTD vs +21% H1 revenue — inverting the June reading. Raw materials $312.3M (+27.2%); finished goods $74.9M (+72.5%); $107.0M of H1 operating cash consumed. Management's cause is supply-constrained hardware demand, not soft sell-through, which is the benign explanation and is corroborated by hardware being called out as a driver of the guide raise. But the FY2025 Form 10-KA company’s audited annual report to the US regulator. The most complete thing it publishes. disclosed prior write-downs for "excess and obsolete inventory related to previous generations of our hardware products" — this company has taken that charge before. Watch, do not dismiss.
4. Revenue recognition — no deterioration. 78% recurring / 22% up-front, essentially flat YoY (78/22 vs 78/22 in Q2 2025; H1 78/22 vs 80/20). Deferred revenue +31.7%. Current receivables growing well below revenue. Unbilled AR +23.8% vs billed AR +2.4% is the one line that moved and it is a watch item, not a finding — unbilled receivables are the normal consequence of ratable recognition running ahead of invoicing.
5. SBC — unchanged, still material. $146.9M = 9.3% of revenue (identical ratio to Q2 2025); unrecognized $970.8M over 2.2 years. The non-GAAP EPS the market quotes ($8.10 guide) overstates economic earnings versus the GAAP guide ($4.81) by 68%.
Regulatory findings (required, re-run):
Bottom line on Lens 10: revenue recognition and cash conversion remain clean. What changed is that the balance sheet now carries acquisition risk roughly equal to the equity base, the income statement's headline growth is flattered by a one-off investment gain against a prior-year charge, and inventory flipped from a comfort to a watch item. None of these is a thesis-breaker. Together they mean the GAAP line deserves more weight than it did in June.
Model status — read this before any number below.
model.xlsxwas rebuilt this run from the newly-populatedour figures(8 quarters, 2024-Q3 → 2026-Q2; opening balance sheet sourced: yes). It has no computed values —our modelreports 51 formulas with no cached results, so every output cell (value per share, EV, FY+3 EPS, balance check) reads—. I am therefore citing no model output. Three seeded assumptions would also need overriding before its outputs could be trusted: share price seeded at 0, tax rate seeded at 15% (Cadence's H1 2026 effective rate was 25.1% ), unlevered beta seeded at 1.0, and depreciation seeded at 50% of opening net PP&E — a distortion here, because most of Cadence's D&A is acquired-intangible amortization, not PP&E depreciation. Everything below is `` with arithmetic shown.
Anchor: FY2026 guide, non-GAAP EPS $8.05–8.15, midpoint $8.10; GAAP EPS $4.76–4.86, midpoint $4.81; revenue $6.260–6.340B.
A detail the GAAP line exposes: H1 2026 GAAP diluted EPS was $2.56; the FY guide midpoint of $4.81 implies ~$2.25 of H2 GAAP EPS — a sequential step-down, driven by the $20–25M H2 investment and the rising intangible amortization. The non-GAAP line hides this entirely.
Buyback drag assumption for all three cases: FY2026 op cash flow ~$2.0B less ~$0.20B Capital expenditureMoney spent on long-lived things — buildings, machines, servers — rather than on running costs. ≈ $1.8B FCF; 50% deployed = $0.9B; at $338 that retires ~2.66M shares ≈ 0.97% of the 275.4M outstanding, largely offset by SBC issuance → ~0.5% net annual share reduction.
| Path | FY2026 | FY2027 | FY2028 | Assumptions |
|---|---|---|---|---|
| Bull | $8.15 | ~$9.94 | ~$12.03 | 20% revenue growth holds (Intel 14A ramps, IP sustains, agentic add-on converts to a disclosed line), +100bps op margin/yr, ~0.5% net buyback. EPS CAGR ~21%. |
| Base | $8.10 | ~$9.48 | ~$11.00 | Growth decelerates 19% → ~15% → ~13% as the Hexagon inorganic contribution laps; margin roughly flat with the promised 2027 recovery offsetting amortization; agentic upside not counted. EPS CAGR ~17%. |
| Bear | $8.05 | ~$8.77 | ~$9.47 | The 50%-affiliate rule un-suspends 2026-11-09 and China steps down from 15%; AI-capex digestion; agentic monetisation stays a rounding error; Hexagon integration drags margin. 8–10% growth, flat margin. EPS CAGR ~8%. |
Cross-check vs Street: consensus PEG of 2.57 against a 39.52x forward P/E implies ~15.4% expected EPS growth — the base case sits just above it, which is the right place for a base case to sit.
Valuation sanity at $338.20 [all estimate: arithmetic shown]:
| Basis | Multiple |
|---|---|
| FY2026 guided non-GAAP EPS $8.10 | 41.8x ($338.20 ÷ $8.10) |
| FY2026 guided GAAP EPS $4.81 | 70.3x ($338.20 ÷ $4.81) |
| Base FY2027 non-GAAP $9.48 | 35.7x |
| Trailing GAAP (quoted) | 67.4x |
Asymmetry — materially better than June, still not good:
Street average PT is quoted at $403.67 across 25 analysts and separately at $375 across 14 analysts — a conflict I am surfacing, not resolving; the coverage universes differ. BofA raised to $400 and KeyBanc to $425 post-print.
(No Brier forecast logged — unattended-run rules. If promoted to a position, the natural falsifier is: "CDNS FY2026 non-GAAP EPS ≥ $8.05," resolving 2027-02.)
Bull case (strengthened this quarter). The toll-booth is collecting more, from more places, than at any point in its history: +24% revenue with all three product categories growing double-digit, IP +40%, SD&A +37%, hardware supply-constrained rather than demand-constrained, record $8.1B backlog in what management says is a low renewal year, and 45.5% non-GAAP operating margin. On top of that, two things happened in six weeks that the June dive could not have priced: Intel Foundry signed a multi-year 14A engagement that closes a two-decade competitive gap, and Samsung and Rapidus deepened alongside it — Cadence is now embedded in every leading-edge foundry flow on earth. And agentic AI finally has numbers attached: 45+ customer engagements across two super-agents, with 2x–40x cited productivity gains. If Devgan's "demand accelerator" thesis is right — agents invoke the physically-accurate engines more, not less — then the July selloff bought a wider moat at a lower price.
Bear case (a real catalyst now exists, with a date).
Pre-mortem (18 months out, thesis broke). The most likely failure mode has changed shape since June. In June it was a passive de-rate on a cooling AI-capex narrative. Now it is active and two-handed: (a) a second, better open-model chip-design demonstration — this time at a modern node, or from a Chinese domestic EDA stack — resets the terminal-value question the market has never had to ask about EDA; (b) the BIS rule un-suspends in November, China steps from 15% back toward 9%, and the 19% growth guide becomes a low-teens reality. Either alone is a 20% de-rate on intact earnings. Together, at 42x, it is 35%+. The franchise still survives in every branch — this remains a multiple risk, not a business risk.
Contrarian view — updated, and it inverts the June one. In June the contrarian point was "the market treats agentic AI as pure upside; the reverse risk is un-underwritten." That trade is now largely done — the market spent July underwriting it, violently. The new contrarian position is the mirror: the market is now over-extrapolating a 45nm toy block into a terminal-value threat, while systematically under-weighting the thing that actually happened in the same six weeks — Cadence closing the Intel gap it had failed to close for twenty years. One of those is a demo; the other is a multi-year contract at the second-largest leading-edge foundry. The tape paid ~$15B of attention to the first and roughly none to the second. If the Three-Layer Cake thesis holds, July was a narrative dislocation, not a re-rating. If it doesn't, July was the first honest quote.
Dismantling the refreshed bull case.
the previous dossierThe fifteen questions there survive intact; Q2 partially answered #1 (agentic engagement counts, still no monetisation model), #4 (Hexagon "progressing well," no milestones given) and #8 (winning at Intel and Samsung). Three to add: 16. Kimi K3 was 45nm and trivial. At what node, and at what design complexity, would an open-source-plus-agent flow start taking real revenue from you — and what is your internal tripwire for that? 17. China went from 9% to 15% of revenue while the BIS 50%-affiliate rule sits suspended until 2026-11-09. What is the revenue at risk if it un-suspends, and why have you never broken out China exposure quantitatively? 18. R&D intensity fell 115bps this quarter. Is the top layer of the Three-Layer Cake — agents and orchestration — getting more absolute R&D dollars than a year ago, or is operating leverage coming out of the exact layer under competitive attack?
Every dossier we have written on Cadence Design Systems, newest first.
The de-rate the June dossier warned about arrived early and for the exact reason it named
A toll-booth on the AI-silicon boom with 86% gross margins and an $8B backlog
Covered in the Knowledge Base
Hardware — Memory & Compute Architecture
| Industry | Semiconductors |
| Size | Public Company |
Where Cadence Design Systems sits against the other names we cover on this beat. Each line is that company’s verdict, not a summary of it.
The Q2 beat was not a peak — July revenue accelerated to +44.7% YoY, the board appropriated a single-tranche US$29.4B of capacity capital, and H1 cape…
The Q2 print did the one thing the bear case could not survive
Cash $4.7B
The thesis got WIDER and the price got WORSE.
Cash $24.0B
LONG — MEDIUM (conviction DOWN one notch from the prior MEDIUM-HIGH, on wider risk, not a worse business).
Cash $25.0B
The circularity flag stopped being a footnote and became the tape
Cash $13.2B