Munger Mode rating: 3 out of 5 — Hold. Our own rating from the research report below, on business quality first: moat durability and management, with price separating the top three.
This is one of the finest business models we have ever examined — a tollbooth on the most important industrial activity of our age, the design of semiconductors. Cadence sits in a cozy duopoly with Synopsys, sells software its customers literally cannot design a modern chip without, enjoys switching costs that approach the absolute, and collects 78% of its revenue on a recurring basis with an $8.1 billion backlog. Management is capable and the growth runway is genuine. Our only quarrel — and it is a serious one — is the price. At roughly 41 times forward non-GAAP earnings, about 60 times trailing GAAP earnings, and a free cash flow yield near 2% before accounting for very substantial stock compensation, the market has already paid Cadence for a decade of excellent execution in advance.
Recent filings analysed: 10-Q (2026-07-29), 8-K (2026-07-27), 8-K (2026-05-12), 8-K/A (2026-05-12).
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