Can Cadence's Strong Free Cash Flow Keep Fueling Shareholder Returns?

Cadence Design Systems Inc. CDNS is a prominent name in the electronic design automation (“EDA”) space. It is witnessing strong cash flow momentum as the top line expands. Broad-based demand for its solutions, especially the AI-driven portfolio, amid robust design activity, is a key catalyst.

In the last reported quarter, revenues of $1.275 billion increased 20.3% year over year. Non-GAAP operating margin expanded 270 bps on a year-over-year basis to 42.8% despite non-GAAP costs and expenses increasing 14.8% to $729 million. Cadence generated an operating cash flow of $378 million in the last reported quarter, while free cash flow was $334 million. As of June 30, 2025, Cadence had cash and cash equivalents of $2.823 billion.

Strong balance sheet and free cash flow generation have allowed the company to sustain an active share repurchase program. The company repurchased shares worth $175 million in the second quarter. In 2024, the company repurchased shares worth $550 million. CDNS does not yet pay a dividend. Buybacks are valuable as they signal a company’s focus on maximizing the value of the stock for current and future investors.

Going ahead, CDNS’ top-line expansion is expected to gain from secular trends like 5G, increasing usage of hyperscale computing and autonomous driving, which are influencing design activity across semiconductor and systems companies. The focus on Generative AI, Agentic AI and Physical AI is leading to an exponential increase in computing demand and semiconductor innovation.

To capitalize on this opportunity, it has been collaborating with several tech giants, including Qualcomm and NVIDIA Corporation NVDA, on their next-generation AI designs across both training and inference. Earlier in the year, the company deepened its multi-year collaboration with NVIDIA to accelerate computing and agentic AI solutions. Recently, the company announced the expansion of its Cadence Reality Digital Twin Platform with the addition of a digital twin of NVIDIA DGX SuperPOD with DGX GB200 systems.

These trends should sustain healthy top-line growth, ensuring sound cash conversion, thereby maintaining strong shareholder returns. For 2025, revenues are now estimated to be in the range of $5.21-$5.27 billion compared with $5.15-$5.23 billion guided earlier. Also, operating cash flow is expected to be between $1.65 billion and $1.75 billion (earlier view: $1.6 billion and $1.7 billion). CDNS expects to utilize at least 50% of its free cash flow to repurchase shares in 2025.

While rising R&D costs and competition from peers could pressure margins, Cadence’s balance sheet strength and high operating leverage expected to provide a buffer.

Taking a Look at Buyback Plans of Peers

Synopsys SNPS is another giant in the EDA space and its recent acquisition of ANSYS is poised to create a synergistic powerhouse. It recently reported third-quarter fiscal 2026 results, wherein revenues jumped 14% year over year to $1.74 billion. During the fiscal third quarter, SNPS generated operating cash flow of $671 million. However, the company did not repurchase any shares in the last reported quarter. It has shares worth $194 million under its buyback plan. SNPS also does not pay a dividend.

Keysight Technologies KEYS is a provider of electronic design and test instrumentation systems. In the last reported quarter, net sales improved to $1.35 billion from the year-ago quarter’s $1.22 billion, exceeding the high end of the guidance. During the quarter, Keysight generated $322 million in cash from operating activities and free cash flow was $291 million. As of July 31, 2025, the company had $2.63 billion in cash and cash equivalents. Keysight repurchased shares worth $50 million in the last reported quarter. KEYS also does not pay a dividend. 

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