Cadence Design Systems (CDNS) Wells Fargo's 9th Annual TMT Summit summary

Business performance and growth drivers

• Central role in AI infrastructure and exponential workload growth are fueling demand across all business lines.

• Revenue growth has consistently been in the low double digits over the past decade, with improving operating leverage.

• Upside in 2023 revenue guidance (from 12% to 14%) driven by increasing complexity in AI workloads and broad-based business strength.

• Record backlog at the end of Q3, with strong Q4 bookings expected to further increase backlog and support future planning.

• Visibility into 2026 is strong, supported by multi-year contracts and a large installed base, especially in hardware.

AI and customer dynamics

• AI is driving both deeper relationships with existing customers and attracting new ones, expanding the customer base.

• Growth is strongest in digital and remote EDA, with AI tools layered on top, enabling more efficient use of engineering resources.

• Foundry partnerships are expanding, with increased engagement at Samsung and Intel, complementing existing strength with TSMC.

• Non-AI semiconductor customers are gradually increasing engagement after lean years, with complexity driving renewed EDA spend.

• AI-related revenue is mainly recurring and is accelerating faster than initially anticipated.

Hardware and supply chain

• Hardware emulation demand remains strong, with customers prioritizing system accuracy and time-to-market.

• Production is being steadily expanded, with revenue throttled by manufacturing capacity and lead times managed between 8 and 22 weeks.

• Customers typically upgrade to newer systems for increased capacity within the same footprint, sometimes requiring infrastructure upgrades.

• Digital twin software is used to optimize server room layouts and power requirements before hardware upgrades.