CDNS Stock Forecast & Price Target

Cadence Design Systems reported a substantial increase in its Q4 backlog, reaching $6.8 billion, up from $5.6 billion in Q3, which provides strong visibility for revenue in the first half of 2025. The company achieved a 27% year-over-year growth in revenue, totaling $1,356 million, driven by solid performance in verification hardware, system design and analysis, and intellectual property sales. Additionally, controlled expenses supported an impressive operating margin of 46%, while significant growth was noted in system design and analysis activities, indicating a robust pipeline and future revenue potential.

The negative outlook on Cadence Design Systems’s stock is primarily driven by anticipated long-term growth deceleration, with expected EDA growth declining to high single digits and IP growth to low teens, resulting in a flow-through rate falling below 50%. The company's 2025 revenue guidance of $5.180 billion, which represents 11.6% growth, is below the consensus estimate of $5.23 billion and indicates a potential slowdown, further exacerbated by a pessimistic forecast for 1Q25 attributed to a pullback in IP and hardware sales. Additionally, management anticipates weakened bookings activity in early 2025 and a possible decline in backlog, which contributes to the uncertainties surrounding future revenue growth prospects.