We came across a bullish thesis on Cadence Design Systems, Inc. on Expanse Stocks’s Substack by Nikotes. In this article, we will summarize the bulls’ thesis on CDNS. Cadence Design Systems, Inc.'s share was trading at $309.62 as of December 1st. CDNS’s trailing and forward P/E were 80.37 and 39.37 respectively according to Yahoo Finance. Kyndryl Launches Agentic AI Solutions, Targets Aviation and Enterprise AI Deployment Copyright: rawpixel / 123RF Stock Photo Cadence Design Systems delivered a strong ...

Core Insights - Synopsys, Inc. is a leading player in the electronic design automation (EDA) industry, known for its innovative AI-driven EDA solutions and silicon-to-systems capabilities [1] Company Performance - KeyBanc adjusted its rating for Synopsys to "Overweight" while lowering the price target from $590 to $575, reflecting current market conditions and the company's strategic moves [2] - Synopsys' stock is currently priced at $449.35, showing an increase of 2.52% or $11.06, with a market capitalization of approximately $83.46 billion [5] Trading Insights - The stock is trading within a support range of $416.38 to $460.20, a level from which it has historically rebounded, achieving an average peak return of 28.5% over the past decade [3] Strategic Developments - The company announced a $2 billion investment and partnership with Nvidia to enhance its AI-driven EDA capabilities, positioning it for growth despite recent challenges [4][6]

Financial Data and Key Metrics Changes - Cadence reported total revenue of $1.339 billion for Q3 2025, with a GAAP operating margin of 31.8% and a non-GAAP operating margin of 47.6% [14] - GAAP EPS was $1.05, while non-GAAP EPS was $1.93 [14] - The company raised its full-year outlook to approximately 14% revenue growth and 18% EPS growth [6][14] Business Line Data and Key Metrics Changes - The IP business is tracking over 20% growth for the second consecutive year, driven by demand in AI and HPC at advanced nodes [19][21] - The core EDA business saw strong results, with significant adoption of AI-driven design and verification solutions [10] - Hardware had a record Q3, with notable expansions at AI and HPC customers [11] Market Data and Key Metrics Changes - Bookings exceeded expectations, resulting in a backlog of over $7 billion [5][14] - China experienced a year-on-year growth of approximately 53%, indicating a return to normal business activity post-regulations [39][41] - The company noted broad-based strength across all geographies, with strong design activity in China [41][82] Company Strategy and Development Direction - Cadence is focusing on the AI megatrend, positioning itself to capture opportunities in AI infrastructure, physical AI, and science's AI [6][7] - The company is expanding partnerships with major players like Samsung and TSMC to enhance its EDA and IP offerings [8][12] - Recent acquisitions, including Hexagon's D&E business, aim to strengthen Cadence's position in the system design and analysis market [12][46] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the ongoing strength of the business and the AI-driven market opportunities [5][13] - The company anticipates continued growth in its IP business, supported by strong customer demand and partnerships with foundries [21][23] - Management remains prudent in its outlook for 2026, emphasizing the importance of maintaining a disciplined approach to growth [36][64] Other Important Information - The company plans to use at least 50% of its annual free cash flow for share repurchases [16] - Operating cash flow for Q3 was reported at $311 million, with a cash balance of $2.753 billion at quarter-end [15] Q&A Session Summary Question: What is driving the growth in the IP business? - Management highlighted that the IP business is performing well due to its focus on AI, HPC, and chiplet-based architecture, with strong customer demand and partnerships with foundries [21][23] Question: Are there still renewals expected in Q4? - Management confirmed that strong demand for AI infrastructure is driving performance, and they expect continued strength in renewals [27][30] Question: What is the outlook for China? - Management noted that design activity in China is strong and returning to normal, with expectations for year-over-year growth [41][81] Question: How is the company positioning itself in the system design market? - Management discussed the strategic acquisitions aimed at enhancing capabilities in simulation and analysis, particularly in the context of physical AI [46][50] Question: What tailwinds are expected from AI features in EDA products? - Management indicated that AI integration is expected to significantly improve productivity metrics, with examples of substantial efficiency gains from AI-driven tools [55][58] Question: What is the demand outlook for hardware platforms? - Management expressed confidence in continued strong demand for hardware, particularly in AI and HPC markets, with expectations for growth in 2026 [62][66]

Financial Data and Key Metrics Changes - Cadence reported total revenue of $1.339 billion for Q3 2025, with a GAAP operating margin of 31.8% and a non-GAAP operating margin of 47.6% [14] - GAAP EPS was $1.05, while non-GAAP EPS was $1.93 [14] - The company raised its full-year outlook to approximately 14% revenue growth and 18% EPS growth [6][14] Business Line Data and Key Metrics Changes - The IP business is tracking over 20% growth for the second consecutive year, driven by demand in AI and HPC at advanced nodes [21][22] - The core EDA business saw strong results, particularly with the adoption of AI-driven design and verification solutions [10] - Hardware had a record Q3, with significant expansions at AI and HPC customers [11] Market Data and Key Metrics Changes - Bookings exceeded expectations, resulting in a backlog of over $7 billion [5][14] - China experienced a year-on-year growth of approximately 53%, indicating a return to normal business activity post-regulations [39][41] - The company noted broad-based strength across all geographies, with strong design activity in China [41][81] Company Strategy and Development Direction - Cadence is focusing on the AI megatrend, positioning itself to capture opportunities in AI infrastructure, physical AI, and science's AI [6][7] - The company is expanding partnerships with major players like Samsung and TSMC to enhance its EDA and IP offerings [8][12] - Recent acquisitions, including Hexagon's T&E business, aim to strengthen Cadence's position in the growing market of system design and analysis [12][46] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the ongoing strength of the business and the AI megatrend driving design complexity [6][13] - The company expects to maintain double-digit growth across all product categories for 2025 [14][36] - Management highlighted the importance of strategic partnerships and the need for continued investment in AI capabilities [36][46] Other Important Information - The company plans to use at least 50% of its annual free cash flow for share repurchases [16] - Operating cash flow for Q3 was reported at $311 million, with a cash balance of $2.753 billion at quarter-end [15] Q&A Session Summary Question: What is driving the growth in the IP business? - Management attributed the growth to a focus on AI and HPC, partnerships with foundries, and strong customer demand [21][22] Question: Are there still renewals expected in Q4? - Management confirmed that strong demand for AI infrastructure is driving performance and that renewals are anticipated [27][30] Question: What is the outlook for China? - Management noted that design activity in China is strong and returning to normal, with expectations for continued growth [41][81] Question: How is the company positioned in the system design market? - Management discussed the strategic acquisitions aimed at enhancing capabilities in simulation and analysis, positioning Cadence well for future growth [46][49] Question: What are the expectations for hardware demand? - Management expressed confidence in continued strong demand for hardware, particularly in AI and HPC markets [62][66] Question: How will the partnership between Nvidia and Intel affect demand? - Management indicated that the collaboration would likely increase demand for EDA tools and enhance performance through optimized CPU-GPU systems [72][76] Question: What are the operational expense dynamics? - Management explained that Q3 performance was aided by a restructure, while Q4 may see increased expenses due to new acquisitions [89]

Financial Data and Key Metrics Changes - Cadence reported total revenue of $1.339 billion for Q3 2025, with a GAAP operating margin of 31.8% and a non-GAAP operating margin of 47.6% [14] - GAAP EPS was $1.05, while non-GAAP EPS was $1.93 [14] - The company raised its full-year outlook to approximately 14% revenue growth and 18% EPS growth [4][12] Business Line Data and Key Metrics Changes - The IP business is tracking over 20% growth for the second consecutive year, driven by demand in AI, HPC, and chiplet architectures [20][21] - The core EDA business saw strong results, with significant adoption of AI-driven design and verification solutions [9] - Hardware had a record Q3, with notable expansions at AI and HPC customers [10] Market Data and Key Metrics Changes - Bookings exceeded expectations, resulting in a backlog of over $7 billion [4][13] - China experienced a year-over-year growth of approximately 53%, indicating a return to normal business activity post-regulatory changes [35][36] Company Strategy and Development Direction - Cadence is focusing on the AI megatrend, positioning itself to capture opportunities across various industries with a comprehensive portfolio [5][12] - The company is expanding partnerships with major semiconductor companies, including TSMC and Samsung, to support next-generation AI flows [6][10] - Recent acquisitions, such as Hexagon's T&E business, are aimed at enhancing capabilities in structural analysis and multi-body dynamics [11][44] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the ongoing strength of the business and the AI infrastructure build-out, which is expected to drive future growth [25][26] - The company anticipates continued strong demand across all business lines and geographies, with a disciplined approach to growth [30][32] Other Important Information - The company plans to use at least 50% of its annual free cash flow for share repurchases [16] - Operating cash flow for Q3 was reported at $311 million, with a cash balance of $2.753 billion at quarter-end [15] Q&A Session Summary Question: What is driving the growth in the IP business? - Management highlighted that the IP business is focused on AI and HPC at advanced nodes, with strong customer demand and partnerships with major foundries [20][21][23] Question: Are there still renewal opportunities in Q4? - Management confirmed that strong demand continues, particularly in AI infrastructure, and that renewals are expected to contribute positively [24][25][27] Question: What is the outlook for hardware demand? - Management indicated that hardware demand remains strong, with expectations for continued growth into 2026 [56][58] Question: How is the company positioned in the system design market? - Management emphasized the strategic acquisitions aimed at enhancing capabilities in simulation and analysis, positioning the company well for future growth [40][44] Question: What are the expectations for China’s growth? - Management noted that design activity in China is back to normal, with expectations for continued growth, contingent on geopolitical stability [73][74] Question: What are the OpEx dynamics for Q3 and Q4? - Management explained that Q3 performance was better than expected due to a small restructure, while Q4 may see some new expenses from acquisitions [76][78]

Financial Data and Key Metrics Changes - Total revenue for Q3 2025 was $1,339,000,000, with GAAP operating margin at 31.8% and non-GAAP operating margin at 47.6% [20] - GAAP EPS was $1.05, while non-GAAP EPS was $1.93 [20] - The company raised its full-year outlook to approximately 14% revenue growth and 18% EPS growth [6][19] Business Line Data and Key Metrics Changes - The IP business is tracking over 20% growth for the second consecutive year, driven by demand in AI, HPC, and chiplet architectures [23][26] - The core EDA business delivered strong results, with significant adoption of AI-driven design and verification solutions [12][19] - The System Design and Analysis (SDA) business saw growth due to innovative solutions and expanding customer adoption [15][17] Market Data and Key Metrics Changes - Backlog grew to over $7,000,000,000, indicating strong demand across all product categories [6][19] - China experienced a year-over-year growth of approximately 53%, with design activity returning to normal following regulatory changes [47][49] Company Strategy and Development Direction - The company is focused on capitalizing on the AI megatrend, positioning itself as a leader in EDA, IP, and system analysis [7][17] - Recent partnerships with major players like Samsung and TSMC aim to enhance AI infrastructure and support next-generation technologies [8][9] - The acquisition of Hexagon's T and E business is expected to strengthen the company's position in structural analysis and multi-body dynamics technologies [17][19] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the ongoing strength of the business and the potential for sustained growth in the AI era [6][17] - The company anticipates continued demand for its products, particularly in AI infrastructure and physical AI [34][44] - Management remains prudent in its outlook, considering potential regulatory changes and geopolitical factors [100][102] Other Important Information - The company plans to use at least 50% of its annual free cash flow for share repurchases [20] - Operating cash flow for Q3 was $311,000,000, with a cash balance of $2,753,000,000 at quarter-end [20] Q&A Session Summary Question: What is driving the growth in the IP business? - The IP business is performing well due to its focus on AI and HPC at advanced nodes, strong partnerships with foundries, and improved customer demand [23][26][29] Question: Are there still renewals expected in Q4? - There are ongoing renewals, and the strong demand for AI infrastructure is a primary driver of performance [32][34] Question: What is the outlook for China? - Design activity in China is strong, and the region is expected to grow year-over-year, contingent on geopolitical stability [47][49][100] Question: How is the company positioned in the system design market? - The company is optimistic about its SDA business, especially with recent acquisitions that enhance its capabilities in physical AI and multibody dynamics [53][60] Question: What are the expectations for hardware demand? - Demand for hardware remains strong, particularly in AI and HPC markets, with expectations for continued growth into 2026 [77][82] Question: How will the partnership between NVIDIA and Intel affect demand? - The partnership is expected to increase demand for EDA tools as the industry moves towards CPU and GPU integration [88][90]

Core Viewpoint - Synopsys, Inc. experienced a significant drop in share price by 36% following the announcement of Q3 2025 financial results, which revealed major issues with a key foundry customer, prompting an investigation into potential misleading information provided to investors [1][4]. Financial Performance - For Q3 2025, Synopsys reported a guidance for Q4 2025 GAAP EPS ranging from negative $0.27 to negative $0.16, indicating a substantial underperformance [4]. - The share price fell over $216, marking the worst single-day percentage decline since the company went public in 1992 [1][4]. Customer Relations - Synopsys had previously assured investors that the reduction in R&D spending by its largest customer, Intel, would not significantly impact its EDA software business, citing "committed, non-cancellable" agreements [3]. - The recent earnings call revealed that challenges with a major foundry customer were significantly affecting the company's IP business and overall performance [4]. Legal and Investigative Actions - Hagens Berman, a national shareholders rights firm, has initiated an investigation into whether Synopsys misled investors regarding customer risks and growth prospects [1][5]. - The firm is encouraging investors who suffered losses to come forward and is seeking information from individuals with knowledge relevant to the investigation [2][5].

Financial Data and Key Metrics Changes - Q3 revenue was $1.74 billion, representing a 14% year-over-year increase, with non-GAAP EPS at $3.39 [15][4] - Non-GAAP operating margin was 38.5%, while GAAP earnings per share were $1.50 [15][16] - Backlog reached $10.1 billion, indicating business resilience despite challenges [15] Business Line Data and Key Metrics Changes - Design automation revenue, including Ansys products, increased by 23% year-over-year to $1.31 billion, driven by hardware strength [8][16] - Design IP segment revenue decreased by 8% year-over-year to $428 million due to various headwinds [16][10] - Adjusted operating margin for design automation was 44.5%, while design IP's adjusted operating margin was 20.1% [16] Market Data and Key Metrics Changes - Strong performance was noted in Europe and North America, while challenges persisted in China [15] - Semiconductor demand in industrial and automotive markets remained subdued [5] Company Strategy and Development Direction - The acquisition of Ansys is seen as a transformational milestone, expanding revenue and customer base [4][6] - The company is focusing on high-growth opportunities in IP and design automation, pivoting resources accordingly [12][10] - A strategic portfolio review is underway to optimize investments and execution [12] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about future growth despite external headwinds, particularly in AI and semiconductor design [5][4] - The company anticipates a transitional and muted year in IP due to ongoing challenges [38][10] - A commitment to achieving synergies from the Ansys acquisition remains strong, despite integration challenges [19][66] Other Important Information - The company plans to reduce global headcount by approximately 10% by the end of fiscal year 2026 to enhance efficiency [12][19] - Ansys revenue for Q3 was $78 million, with expectations for continued growth in Q4 [69][15] Q&A Session Summary Question: Can you elaborate on the challenges in the IP business? - Management identified three main challenges: export restrictions affecting China, issues with a major foundry customer, and roadmap/resource allocation decisions that did not yield expected results [22][23] Question: How will the company address the decline in operating margins? - The decline is primarily due to the IP business's revenue headwinds, but the long-term commitment to mid-40% operating margins remains intact [27][31] Question: What is the outlook for the Ansys acquisition? - The integration is progressing well, with no significant surprises, and the company is focused on delivering on revenue synergies [66][67] Question: How does the company plan to manage the transition in the IP business model? - The company is pivoting towards more customized solutions and subsystems, which may require new business models to capture value [47][50] Question: What is the expected impact of the headcount reduction? - The reduction is part of a broader strategy to optimize resources and improve efficiency, which has been planned for some time [91][12]

Summary of Cadence Design Systems (CDNS) Conference Call Company Overview - **Company**: Cadence Design Systems (CDNS) - **Event**: 2025 Conference Call - **Date**: August 27, 2025 Key Industry Insights - **EDA Landscape**: The current Electronic Design Automation (EDA) landscape is characterized by significant opportunities driven by advancements in AI and chip design technologies [2][4] - **AI Super Cycle**: The AI super cycle is a major focus, with customers pushing the boundaries in chip design, including 3D IC and advanced packaging [4][5] - **Customer Base**: Cadence has strong partnerships with leading companies such as NVIDIA, Intel, Samsung, and TSMC, which enhances its market position [5][6] Financial Performance - **Backlog**: Cadence finished the previous year with a record backlog of $6.8 billion, which decreased to $6.4 billion by mid-year. However, strong booking activity is expected to lead to a new record backlog by year-end [26][28] - **Revenue Model**: Approximately 80% of Cadence's revenue is ratable, primarily from subscription-based models, which allows for gradual revenue recognition as customer adoption increases [8][10] Product Development and Innovation - **cadence.ai Portfolio**: The cadence.ai portfolio is expanding, with significant adoption beyond the top five customers. The introduction of products like Cerberus AI Studio is expected to enhance productivity and reduce time to market by 5x to 10x [14][6] - **Integration of AI**: The integration of AI tools is leading to increased productivity and faster time to market for customers, which in turn is expected to result in earlier revenue recognition for Cadence [10][12] Competitive Landscape - **ANSYS Merger Impact**: The recent merger of ANSYS is viewed as neutral to positive for Cadence, as it may lead to increased competition but also provides opportunities for customers to explore alternatives [20][22] - **Market Position**: Cadence maintains a strong competitive position against Synopsys, with both companies benefiting from healthy competition that drives innovation [21][22] Customer Dynamics - **Intel Relationship**: There is potential for increased business with Intel, especially under new leadership. Cadence is well-positioned to support Intel's needs with silicon-ready IP and tools for advanced nodes [40][42] - **China Market**: The Chinese market is expected to remain volatile, but Cadence's revenue is based on consumption rather than geographical location, which mitigates risks associated with regional fluctuations [44][46] M&A Strategy - **Acquisition Philosophy**: Cadence prefers to develop internally rather than pursue large acquisitions. The company focuses on small, strategic tuck-in acquisitions that align with its long-term growth strategy [56][66] - **Talent Retention**: Cadence emphasizes retaining AI talent by providing opportunities to work on innovative projects, which is crucial given the competitive landscape for skilled professionals [59][60] Conclusion - Cadence Design Systems is well-positioned in the EDA market, leveraging its strong customer relationships and innovative product offerings to capitalize on the AI super cycle. The company is focused on sustainable growth through strategic partnerships, a diversified product portfolio, and a commitment to internal development over opportunistic acquisitions.

Financial Performance & Guidance - Q2 2025 revenue reached $1205 million, a 19% year-over-year decrease [43] - Q2 2025 Non-GAAP operating loss was $57 million [43] - The company maintains FY25 revenue guidance between $64 million and $70 million, representing a 7% to 17% year-over-year increase [10, 12] - FY25 gross bookings are projected to be between $67 million and $74 million, a 2% to 13% year-over-year increase [12] - Q3 2025 revenue is guided to be between $14 million and $18 million, a 28% to 64% increase from Q3 2024 [12, 62] Strategic Initiatives & Market Expansion - Silvaco expanded its serviceable addressable market (SAM) by $110 million through the acquisition of Mixel IP [10, 22] - The company achieved Annual Contract Value (ACV) growth of 26% for the trailing twelve months (TTM) ending in Q2 2025 [22, 39] - 14% of revenue came from 10 new customers, representing $39 million in bookings [16] Product & Customer Highlights - 40% of revenue was generated from expansion within existing customers, resulting in $43 million in bookings [16] - TCAD bookings decreased by $78 million, a 55% decrease year-over-year, due to a high-value FTCO booking in Q2 2024 [48] - SIP bookings increased by $15 million, an 87% increase year-over-year, driven by foundry enablement [48]