Cadence's (CDNS) 4th quarter results strongly suggest that the death of SaaS is exaggerated. This is a strong company with great prospects.
Cadence's earnings mitigated and defied fears of AI disruption, as it beat on earnings, revenues and also raised guidance. It was good to see shares rise 7% post earnings and take competitor Synopsis (SNPS) up with it. EDA (Electronic Design Automation), is not so easily disrupted and Cadence strongly pushed back at suggestions that it would be run over.
Sure the beats weren't massive by any standards, but they were beats nonetheless, defying the chaos perpetuated by all the "SaaSmageddon" narrative, which was torching every software company indiscriminately. For the discerning, yes Cadence is a SaaS company but its the source of all things AI, and replacing it is highly , highly unlikely.
The guidance for 2026 was also slightly higher.
Cadence ended the quarter with a record backlog of $7.8Bn, of which about 65% to 70% will be recognized as revenue in 2026.
Wall Street loves it and investors drove the stock 7% higher post market, a welcome change in sentiment still rewarding good companies.
Wells Fargo analyst, Joe Quatrochi reiterated his Outperform rating, but lowered his price target to $375 from $410, had this to say.
Cadence's initial 2026 guide of $5.90-$6.0B implies +12.3% y/y at the midpoint, which was inline with our previewed buy side bogey. That said, Q26 guide implied at +16% y/y (we believe HW-driven) & re-accelerating recurring [software] demand, we expect continual upside throughout 2026. We expect the company to highlight improving [hardware] demand as the yr. progresses given ~6 month visibility.
Bank of America analyst, Vivek Arya too liked the results:
CDNS remains our top EDA pick as their portfolio is seeing share gains across all segments with 1) ASIC-based hardware platform remaining best-in-breed, 2) stronger exposure to TSMC ecosystem and at new foundries translating into IP share gains, and 3) 3DIC (~50% of SD&A) and physical AI (other ~50% of SD&A) EDA tools also taking share in expanding [total addressable markets]Management View
In my previous article, I had stated the management has a strong vision and will remain in the forefront with AI development, especially physical AI, which is the next frontier. This is a huge competitive advantage that will not be lost to AI.
CEO, Anirudh Devgan, had this to say:
Cadence delivered excellent results for the fourth quarter, closing an outstanding 2025 with 14% revenue growth and 45% operating margin for the year. We are deploying Agentic AI workflows powered by intelligent agents that autonomously call our underlying tools... enabling our customers to significantly expand design exploration and accelerate time to market.
Management also reported growth for its ChipStack AI Super Agent, suggesting endorsements from Qualcomm, NVIDIA, Altera, and Tenstorrent.
I agree with management's contention that they would make much better use of AI tools to improve their own products, and don't see any threats to their business model. It’s a great company, and should continue to do well. That said, given re-assessment of lower multiples for SaaS and software related businesses, it would be prudent to continue holding - Cadence quotes 35x $8.11 2026 earnings, a fair price.
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