Cadence Finishes 2022 With Strong Results and an Encouraging Outlook

Narrow-moat Cadence Design Systems reported strong fourth-quarter results, with results exceeding management’s guidance. Secular trends in artificial intelligence/machine learning, 5G communications, and hyperscale computing continue to be a boon for Cadence and drive digital transformation throughout its end-markets. We maintain our thesis that Cadence is in a uniquely strong position to capitalize on two semiconductor design industry tailwinds: advancing technologies requiring system-level designs, packaging, and analysis and increasing software content for systems companies. When considering macroeconomic uncertainty along with our above-consensus expectations we are maintaining our $161 per share fair value estimate, and view shares as slightly overvalued after trading up to $191 after hours.

Fourth-quarter revenue grew 16% year over year to $900 million. Growth was broad-based with each segment growing double-digits compared with the year-ago period. Its verification business was also a strong suit growing 28% year over year. We also took note of strength in its systems design and analysis business, which grew 27% year over year as systems and semiconductors increasingly converge. Lastly, we are encouraged by continued growth of its intellectual property business, with 12% year-over-year growth in both the quarter and year.