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Investing.com -- Piper Sandler downgraded Cadence Design (NASDAQ:CDNS) Systems to Neutral from Overweight, saying the stock’s recent rally has pushed its valuation above levels supported by current growth expectations.
The firm maintained its price target at $350.
Shares had jumped about 7% in after-hours trading following better-than-expected second-quarter results.
Cadence posted revenue of $1.28 billion, up 20% year-over-year and 2% above consensus, despite disruptions from U.S. export controls in June.
Non-GAAP operating margin came in at 42.8%, beating estimates by 100 basis points, while earnings per share were $1.65 versus expectations of $1.56.
Growth was broad-based, with core electronic design automation (EDA) revenue rising 16%, system design and analysis up more than 35%, and IP revenue climbing over 25%.
The company raised its full-year revenue forecast by $50 million and now expects 12.9% growth for 2025, with operating margins guided to 44% and EPS raised by $0.12.
Still, Piper Sandler said Cadence’s stock now trades at roughly 45 times projected 2026 earnings, and 48 times estimated free cash flow, levels that fully reflect the company’s strong performance and outlook.
The brokerage said it would need to see a clear improvement in semiconductor market demand to support further upside.
Cadence’s backlog stood at $6.4 billion at the end of June, but the figure does not include China due to ongoing export restrictions.
The company now expects modest full-year growth in China, up from a flat outlook previously.