Cadence Design Systems (CDNS) Morgan Stanley Technology, Media & Telecom Conference 2026 summary

AI and technology strategy

• Emphasizes a three-layer model: AI/data science at the top, physics/ground truth in the middle, and compute/data at the base, applicable across domains like chip design, robotics, and life sciences.

• Physical AI (robots, cars, drones) is seen as a major growth area, requiring accurate simulation and bridging the sim-to-real gap.

• Recent M&A, such as the Hexagon acquisition, aims to enhance simulation accuracy for Physical AI by integrating advanced robotic simulators.

• The silicon required for Physical AI is more mixed-signal and low power, aligning with core strengths and partnerships with major OEMs.

• AI is viewed as amplifying, not disrupting, the business model, driving greater usage of core tools as chip complexity and workloads grow exponentially.

Product innovation and monetization

• Launched ChipStack, a new product category automating RTL and test bench generation using LLMs and knowledge graphs, expanding automation in chip design.

• Monetization strategy for agentic EDA tools will combine base subscriptions with token-based usage, aiming for margin accretion and customer transparency.

• Hardware products like Palladium, a custom Boolean supercomputer for chip verification, have seen record growth for six consecutive years, driven by demand for faster and more accurate emulation.

• IP business is experiencing its third year of strong growth, supported by improved products, acquisitions (e.g., Rambus HBM), and increased demand from advanced node foundries.

• The chiplet era and hybrid designs are increasing demand for both EDA tools and standard-based IP, as customers focus on differentiating core components.

Financial performance and outlook

• Core EDA business is targeting 12%+ growth this year, with a focus on maintaining world-class margins and aiming to surpass a Rule of 40 metric of 60.

• Last year saw 14% revenue growth and 20% EPS growth, with incremental margins at 59%.

• Hexagon acquisition is expected to be margin accretive by next year, with initial impact mainly on financing rather than operations.

• China showed 18% growth last year despite turbulence, with a stable environment and strong design activity expected to continue.

• EDA and hardware have strong positions in China, while IP focus remains on advanced nodes and AI.