Cadence Design stock drops after raised outlook still disappoints in the short term

While the company said it hiked its forecast for the year on strength from AI-related sales, the outlook for the current quarter fell short of expectations.

For the third quarter, Cadence said it expects earnings of $1.18 to $1.22 a share on revenue between $990 million and $1.01 billion. Analysts surveyed by FactSet expect earnings per share of $1.26 on revenue of $1.01 billion for the third quarter.

“With its unparalleled promise, Generative AI is beginning to make a significant impact globally,” said Anirudh Devgan, Cadence’s chief executive, in a statement. “Our dedicated focus on AI over the past several years, combined with our computational software expertise and invaluable data that lies at the core of AI, uniquely positions us to deliver to the tremendous potential of this transformative technology.”

For the year, Cadence now expects earnings of $5.05 to $5.11 a share on revenue of $4.05 billion to $4.09 billion, while analysts, on average, expect full-year earnings of $5.03 a share on revenue of $4.06 billion.

“Our revenue outlook for the second half represents a year-over-year growth of approximately 15%, allowing us to raise our 2023 revenue guidance to more than 14% growth over 2022,” said John Wall, Cadence’s chief financial officer, in a statement.

The company reported second-quarter net income of $221.1 million, or 81 cents a share, compared with $186.9 million, or 68 cents a share, in the year-ago period. Adjusted earnings, which exclude stock-based compensation expenses and other items, were $1.22 a share, compared with $1.08 a share in the year-ago period.

Revenue rose to $976.6 million from $857.5 million in the year-ago quarter. Analysts surveyed by FactSet had forecast $1.18 a share on revenue of $974.8 million.