Cadence Design Systems shares pop on earnings beat, custom chip optimism

Shares of Cadence Design Systems experienced a significant 9% increase on Wednesday, following the company's impressive earnings report that surpassed analysts' forecasts. The San Jose-based firm announced its financial results after market close on Tuesday, revealing an adjusted earnings per share of $1.99 and revenue totaling $1.44 billion for the fourth quarter of 2025. This marks a 6% rise in both metrics compared to the previous year. Analysts from LSEG had anticipated an EPS of $1.91 alongside a revenue figure of $1.42 billion. In an appearance on CNBC's "Squawk on the Street," CEO Anirudh Devgan highlighted that nearly 45% of Cadence's business now stems from what he refers to as "system companies." These include major players in technology, such as hyperscalers and manufacturers of smartphones and automobiles. Devgan emphasized the increasing trend where system companies are looking to optimize their hardware and software integration by designing custom chips tailored to their specific workloads. He pointed to Apple’s advancements with its smartphone chips and Google’s development of custom AI silicon as prime examples of this movement, stating that the trend is set to accelerate. Looking ahead, Cadence Design Systems projects revenue between $5.9 billion to $6 billion for the upcoming fiscal year, which aligns with FactSet's expectations of $5.94 billion. The company continues to compete in the chip design software market against rivals such as Synopsys and Siemens, amidst a burgeoning landscape driven by artificial intelligence and substantial investments in research and development by various tech firms.