Cadence Design Systems ($CDNS) reported strong Q4 2024 results, exceeding revenue and EPS expectations. However, the stock declined 3.92% after-hours as FY 2025 guidance came in below analyst estimates.

Q4 2024 Key Financials

• Revenue: $1.356 billion (up 27% YoY, beat estimates of $1.34 billion)
• GAAP EPS: $1.24 (up 4% YoY, beat estimates of $1.22)
• Non-GAAP EPS: $1.88 (up 36% YoY, beat estimates of $1.80)
• Non-GAAP Operating Margin: 46.0% (vs. 42.9% in Q4 2023)
• Backlog: $6.8 billion (record high)

Full-Year 2024 Performance:

• Revenue: $4.641 billion (up 13.5% YoY)
• GAAP EPS: $3.85 (vs. $3.82 in 2023)
• Non-GAAP EPS: $5.97 (vs. $5.15 in 2023)

Cash Flow & Shareholder Returns:

• Cash balance: $2.64 billion
• Share repurchases: $550 million in 2024

Stock Reaction: Decline Due to Lower-Than-Expected FY 2025 Guidance

Despite strong Q4 results, Cadence’s full-year 2025 guidance fell short of Wall Street expectations, leading to a negative stock reaction.

FY 2025 Guidance vs. Analyst Expectations:

• Revenue: $5.14 billion – $5.22 billion (vs. $5.25 billion expected)
• GAAP EPS: $4.19 – $4.29 (vs. $4.30 expected)
• Non-GAAP EPS: $6.65 – $6.75 (vs. $6.83 expected)

Q1 2025 Guidance:

• Revenue: $1.23 billion – $1.25 billion (vs. $1.27 billion expected)
• Non-GAAP EPS: $1.46 – $1.52 (vs. $1.56 expected)

The market reacted negatively to this softer outlook, particularly in a high-growth AI-driven sector where expectations remain elevated.

Growth Drivers & Business Updates

Despite the guidance miss, Cadence continues to see strong demand across multiple segments:

• AI-driven semiconductor design remains a key growth driver.
• Expanded partnerships with NVIDIA, Qualcomm, Marvell, TSMC, Intel, Arm, and Samsung.
• AI-powered tools, including Cadence Cerebrus, Verisium SimAI, and Allegro X AI, gained traction.
• System Design & Analysis revenue grew 40% year-over-year, driven by aerospace, defense, and automotive.
• EDA hardware demand remained strong, with Palladium Z3 & Protium X3 recording record orders.

CEO Anirudh Devgan on AI Expansion:

“Cadence is uniquely positioned to benefit from AI’s continued growth, both in semiconductor design and in expanding markets like life sciences.”

Market Concerns and Key Risks

1. Growth outlook appears to be moderating compared to previous quarters.
2. Guidance assumes flat revenue from China, reflecting potential geopolitical risks.
3. AI-related stocks have been priced for high growth, and Cadence’s outlook was below expectations.

Key Takeaways & Outlook

• Cadence delivered a strong Q4 but provided cautious guidance for 2025.
• AI-driven demand remains a long-term tailwind, but near-term growth may be normalizing.
• Stock reaction (-3.92% after hours) reflects investor disappointment in the 2025 outlook.
• Key levels to watch: Support near $265-$270, resistance at $290-$295.

Long-term investors may focus on backlog strength, while traders may react to near-term growth concerns.