Cadence Design Systems Earnings: Revenue Deceleration and Weak Quarterly Guidance Spark Concern

We are maintaining our $240 fair value estimate for narrow-moat Cadence Design Systems after the firm reported first-quarter results that missed our revenue estimate but delivered upside relative to our non-GAAP operating margin estimate. Cadence’s second-quarter guidance was below FactSet consensus on the bottom line, which likely led to the stock dropping by approximately 6% after hours, despite the firm essentially maintaining its full-year guidance for revenue and adjusted earnings per share. Nevertheless, we remain optimistic about the burgeoning adoption of electronic design automation tools driven by chip demand from artificial intelligence. With this, our long-term expectations remain intact. Despite the drop in share price, we still view the current stock as slightly overvalued.