Is Cadence Stock Still Attractive After 5% Weekly Surge and Continued AI Momentum in 2025?

Let’s face it, Cadence Design Systems has been on quite the run lately and if you hold shares or are thinking about jumping in, you’re not alone in wondering what comes next. Over just the past week, the stock has jumped 5.0%, adding to a pattern of impressive longer-term gains. That includes a 23.1% boost since the start of the year and a stellar 246.3% surge over the past five years. These numbers capture the confidence the market has in Cadence’s software and chip design leadership, and reflect how investors are viewing technology companies with exposure to AI and semiconductor innovation.

Of course, when a stock rallies this far, this fast, the next logical question is whether the valuation is still justified, or if shareholders are piling on more excitement than fundamentals can support. That is exactly where things get interesting. Based on our scorecard that checks six major ways to spot undervaluation, Cadence scores a straightforward zero. In other words, the company is undervalued in zero out of six checks right now. This gives a pretty clear context as we move into a deeper valuation discussion.

If you’re curious about how the most common valuation frameworks stack up for Cadence, and how you can go beyond checklists to really judge what the stock is worth, stick with me. Next, we’ll break down the main approaches, but be on the lookout for a more insightful shortcut before the end of this article.

Cadence Design Systems scores just 0/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: Cadence Design Systems Discounted Cash Flow (DCF) Analysis

The Discounted Cash Flow (DCF) model is a classic approach to estimating a company’s intrinsic value by projecting its future cash flows and discounting them back to today’s dollars. For Cadence Design Systems, analysts start by looking at the company’s Free Cash Flow, which currently stands at $1.57 Billion. They assess growth potential for the next several years. In this case, analyst estimates reach out five years, and Simply Wall St extrapolates these figures further for a full ten-year projection.

According to these projections, Cadence’s Free Cash Flow is expected to rise steadily, with estimates placing it at $2.54 Billion by 2029 and over $3.37 Billion by 2035. All figures are in US dollars. These robust projections are plugged into a 2 Stage Free Cash Flow to Equity model, which accounts for both the near-term growth and the more stable, mature period after that.

Based on this DCF analysis, the intrinsic value of Cadence shares comes in at $166.95. However, compared to the current share price, this suggests the stock is actually 119.4% overvalued. In short, the market’s enthusiasm far outpaces what the DCF model indicates is reasonable based on future cash generation alone.

Result: OVERVALUED

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Cadence Design Systems.

Our Discounted Cash Flow (DCF) analysis suggests Cadence Design Systems may be overvalued by 119.4%. Find undervalued stocks or create your own screener to find better value opportunities.

Approach 2: Cadence Design Systems Price vs Earnings

For profitable companies like Cadence Design Systems, the Price-to-Earnings (PE) ratio is a widely used and effective metric for valuation. This multiple directly measures how much investors are willing to pay per dollar of earnings, making it especially useful for companies with consistent and growing profits.

The "right" PE ratio for a stock is shaped by several factors. Faster earnings growth tends to justify a higher multiple, while greater risks can push it lower. The nature of the industry and the company’s competitive position also play a role in defining a fair valuation range.

Currently, Cadence’s PE ratio stands at a lofty 98.6x. For context, this is well above the average for peers at 68.5x, and much higher than the broader software industry average of 36.2x. These comparisons suggest the market is pricing in a significant premium for Cadence’s growth potential and profitability.

To provide a more nuanced view, Simply Wall St calculates a “Fair Ratio” for Cadence, which factors in growth prospects, profit margins, industry conditions, market cap, and company-specific risks. This proprietary metric delivers a more tailored benchmark than simply looking at peer or industry averages. For Cadence, the Fair Ratio is estimated to be 42.8x, meaning the current multiple is more than double what this model suggests would be fair.

When measured against the Fair Ratio, Cadence Design Systems appears overvalued by this method.

Result: OVERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Cadence Design Systems Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let’s introduce you to Narratives. A Narrative is simply your personal story or perspective on what Cadence is worth. It connects your assumptions about the company’s future revenues, earnings, and margins to a calculated fair value. Rather than just looking at static metrics, Narratives let you tie the company’s story directly to a forecast and a price, making your investment decision more meaningful.

On Simply Wall St’s Community page, Narratives are available as an easy-to-use tool for millions of investors, helping you map your outlook to real numbers and see how your views compare. Narratives empower you to decide when to buy or sell by showing the gap between fair value (based on your story) and today’s market price. In addition, they stay relevant because whenever new news or earnings come out, these Narratives update automatically, keeping your analysis fresh.

For Cadence Design Systems, Narratives reflect the range of investor expectations. Some see a fair value as high as $410.00, while others set it as low as $200.00, all based on their differing outlooks for AI adoption, competitive threats, and business execution.

Do you think there's more to the story for Cadence Design Systems? Create your own Narrative to let the Community know!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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