By Adam Levine

Cadence Design Systems reported solid third-quarter earnings results on Monday afternoon. Its shares were down in after-hours trading.

Adjusted earnings-per-share were up to $1.93, above Wall Street's consensus estimate of $1.79, according to FactSet, and up from $1.64 last year. Revenue for the quarter reached $1.34 billion, better than expectations of $1.32 billion, and up 10% on the year.

Analysts closely watch Cadence' adjusted operating margin, which came in at 47.6% for the third quarter, again exceeding analyst estimates and up from 44.8% last year

Cadence stock was down 1.8% in late trading following the release, erasing today's gains during normal trading hours.

This is breaking news. Read a preview of Cadence' earnings below and check back for more analysis soon.

The trade war will remain at the center of attention when Cadence Design Systems reports its third-quarter earnings Monday afternoon.

A key link in the global chipmaking ecosystem, the company has become a bargaining chip in the U.S. trade negotiations with China, where Cadence got 12% of its revenue last year.

This has been an on-and-off story for Cadence and its nearest competitor, Synopsys. In May, the companies revealed the U.S. Department of Commerce notified them that sales to China would require licenses because they "pose an unacceptable risk of use in or diversion to a 'military end use' in China," according to a Cadence filing. Then, as the countries de-escalated tensions through June, the companies got an early-July reprieve, and the license requirement was dropped.

But the pendulum keeps swinging. On Oct. 10, Trump announced his intention to impose export restrictions on critical software, presumably including Cadence and Synopsys under that umbrella. Now, at the end of the month, tensions have calmed again. But absent a comprehensive U.S.-China trade deal that keeps them off the table, these companies will remain in limbo, because they are as critical as software gets.

Cadence and Synopsys make chip-design software that automates the process of laying out the tens of billions of transistors that make up modern chips. They also make hardware that is used to test designs for real world applications before they are sent to the factory to make silicon chips. The software-hardware combination is essential to chipmaking, and why it has gotten caught up in the trade war.

The other risk weighing on the stock is valuation concerns. Buoyed by research and development of artificial-intelligence chips and a new generation of hardware in the last 12 months, Cadence sales grew by 22% year-over-year. Three months ago when Cadence reported its second quarter, the stock shot up 10% the following day on strong results and raised guidance for the year, and the rally continued for a second day.

But since then the stock is down 6%, while the tech-heavy Nasdaq 100 is up almost 9%. Worries about its Chinese sales persist, but investors also woke up to the possibility that AI-fueled growth has slowed, at least for now.

Even the raised 2025 guidance implied a deceleration of growth in the second half of the year, with sales and earnings both expected by Wall Street analysts to grow by around 5% since 2024.

Cadence stock is still selling at 45 times earnings-per-share for the next 12 months, according to analysts tracked by FactSet. The stock price is up 117% since the end of 2022, and Cadence will have to continue to beat expectations to keep that valuation intact.

Cadence shares were up 1% in midday Monday trading.

Write to Adam Levine at adam.levine@barrons.com

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October 27, 2025 16:21 ET (20:21 GMT)

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