Cadence Design Systems Inc (CDNS.O): Stronger Visibility, Emerging AI Upside

Morgan Stanley reiterates Overweight on Cadence Design Systems (CDNS.O) with a $400 price target after a beat-and-raise quarter. Q3 revenue rose 22% yy to $1.633bn, with non-GAAP operating margin of 44.1% and non-GAAP EPS of $2.11. Growth was broad-based: SD&A rose 30% (including Hexagon), core EDA grew 20% and IP 24%. Backlog reached a record $8.2bn and cRPO of $4.2bn is ~2.5x the Q4 guidance midpoint, leaving essentially all of Q4 revenue covered. Management raised FY26 guidance to 21% revenue growth (over $6.4bn), ~$2bn operating cash flow and EPS of $8.40 versus consensus of $8.16. On agentic AI, Cadence launched Maestro plus proprietary agents (AuraStack, ChipStack, InnoStack, ViraStack), emphasising control via proprietary models, customer-specific training and on-premises deployment, claiming up to 30% better design quality and 5x token efficiency, with selected-customer access from 4Q26 and no discrete AI revenue disclosed. Hexagon remains the main margin headwind, with ~$91m o