Cadence Design Earnings: China Headwinds Loom, and 2025 Outlook Falls Short of Our Expectations

Wide-moat Cadence Design Systems reported 2024 results that were broadly in line with our expectations, but management’s cautious revenue outlook led us to reduce our near-term growth estimates. We've lowered our fair value estimate to $300 per share from $313, mainly driven by a deceleration of our 2025 revenue forecast to low-teens growth from midteens growth previously, as Cadence set a mild $5.18 billion 2025 guidance midpoint compared with our previous $5.46 billion estimate. With the stock falling roughly 12% in Feb. 19 trading, we view Cadence as mildly undervalued. We would not be surprised to see revenue growth outperform the initial outlook this year.