About CADENCE DESIGN SYSTEMS INC
Cadence Design Systems, Inc. provides software, hardware, services, and reusable integrated circuit (IC) design blocks worldwide. The company offers functional verification services, including emulation and prototyping hardware. Its functional verification offering consists of JasperGold, a formal verification platform; Xcelium, a parallel logic simulation platform; Palladium, an enterprise emulation platform; and Protium, a prototyping platform for chip verification. The company also provides digital IC design and sign off products, including Genus logic synthesis and Joules RTL power solutions, as well as Modus software solution to reduce systems-on-chip design-for-test time; physical implementation tools, such as place and route, optimization, and multiple patterning preparation; and signoff products to signoff the design as ready for silicon manufacturing. In addition, it offers custom IC design and simulation products to create schematic and physical representations of circuits down to the transistor level for analog, mixed-signal, custom digital, memory, and radio frequency designs; and system design and analysis products to develop printed circuit boards and IC packages, as well as to analyze electromagnetic, electro-thermal, and other multi-physics effects.
Further, the company provides intellectual property (IP) products comprising pre-verified and customizable functional blocks to integrate into customer's ICs; and verification IP and memory models to emulate and model the expected behavior and interaction of standard industry system interface protocols. Additionally, it offers services related to methodology, education, and hosted design solutions, as well as technical support and maintenance services. The company serves 5G communications, aerospace and defense, automotive, industrial and healthcare, mobile, consumer, and hyperscale computing markets. Cadence Design Systems, Inc. was incorporated in 1987 and is headquartered in San Jose, California.
CDNS operates in the Services | Computer Software | headquartered in Wilmington, California | approximately 10,200 employees | led by CEO Anirudh Devgan.
The $95.7B question: What happens when a company this good becomes this expensive?
In the rarefied air of Silicon Valley valuations, CADENCE DESIGN SYSTEMS INC sits at a peculiar crossroads. The company that once defined an era now finds itself redefining another — and investors are paying a premium for the privilege of coming along.
At $95.7B in market capitalization, CADENCE DESIGN SYSTEMS INC (CDNS) currently ranks #194 in our quantitative model, with a composite score of 76.6/100. That places it firmly in "Strong Buy" territory — our highest conviction rating.
But here's the thing about stocks priced for perfection: They leave no room for error.
The Numbers That Matter
Let's start with what's undeniably true. Our 6-factor model gives CDNS the following scores:
| Factor | Score | Weight | Assessment |
|---|---|---|---|
| Quality | 84/100 | 30% | Exceptional |
| Value | 78/100 | 15% | Fair |
| Momentum | 58/100 | 25% | Steady |
| Investment | 42/100 | 10% | Moderate |
| Stability | 60/100 | 10% | Solid |
| Short Interest | 45/100 | 10% | Normal |
The quality score of 84/100 is the headline here. It reflects profitability metrics that would make most CFOs weep with envy:
- ROE: 24.3%
- Net Margin: 21.4%
- Gross Margin: 86.4%
These aren't just good numbers. They're the kind of numbers that make CDNS a "must-own" stock for institutional portfolios.
The Bull Case
"If you could design a business in a laboratory, it would look something like CDNS."
The bull case writes itself:
- Quality is persistent. Academic research shows high-quality stocks outperform by 4-6% annually over long periods. CDNS is quality defined.
- Momentum is real. With a momentum score of 58/100, the stock has been recognized by the market — and momentum tends to persist.
- The moat is deep. Companies with these margins don't lose them easily. The competitive position is entrenched.
The Bear Case
But here's what keeps value investors up at night:
- Valuation compression risk. At current levels, the stock is priced for continued perfection. Any stumble — a missed quarter, a competitive threat, a macro slowdown — could compress the multiple from 90.2x to the low 20s. That's a 20-30% decline without anything fundamentally "wrong."
- The crowded trade problem. When everyone owns a stock, who's left to buy? Momentum works until it doesn't.
- Mean reversion. Trees don't grow to the sky. At some point, growth decelerates.
The Valuation Framework
| Scenario | Assumption | Fair Value | Upside/Downside |
|---|---|---|---|
| Bear | Multiple compression to 20x | -20% | Downside |
| Base | Current trajectory continues | +10-15% | Modest upside |
| Bull | Momentum accelerates | +30-40% | Significant upside |
The risk-reward is ... fine. Not exceptional. Not terrible. Just fine.
The Bottom Line
CADENCE DESIGN SYSTEMS INC is exactly what it appears to be: a high-quality business with strong momentum trading at a premium price. Whether that's attractive depends entirely on what kind of investor you are.
For long-term, buy-and-hold investors, CDNS is a core holding. For value investors or short-term traders, look elsewhere.
The company is priced for perfection — and in markets, as in life, perfection is a fragile thing.
⭐⭐⭐⭐⭐ Rating: 5-Star Strong Buy
Score: 76.6/100 | Rank: #194 of 3,571 stocks
Sector: Technology
This analysis reflects the views of Blank Capital Research as of February 16, 2026. It is not investment advice. Past performance does not guarantee future results.