In the fast-evolving technology landscape, Cadence Design Systems, Inc. (CDNS) and Arm Holdings plc (ARM) stand out as significant players in their respective niches. While both companies operate in the technology sector, CDNS focuses on software solutions for integrated circuit design, whereas ARM specializes in semiconductor technology and licensing. Their innovative strategies and market overlaps make them compelling subjects for comparison. Join me as I delve into their strengths and weaknesses to uncover which company might be the better investment opportunity for you.
Table of contents
Company Overview
Cadence Design Systems, Inc. Overview
Cadence Design Systems, Inc. is a leading provider of software, hardware, and services that facilitate the design and verification of integrated circuits (ICs). Established in 1987 and headquartered in San Jose, California, Cadence aims to accelerate innovation in the semiconductor industry by offering a comprehensive suite of tools for functional verification, digital IC design, and system design analysis. With a market cap of approximately $84.88B, the company serves diverse sectors including 5G communications, aerospace, automotive, and healthcare. Cadence’s commitment to advancing design methodologies positions it as a crucial player in the technology landscape.
Arm Holdings plc American Depositary Shares Overview
Arm Holdings plc, founded in 1990 and based in Cambridge, United Kingdom, specializes in designing and licensing semiconductor technologies, primarily focusing on microprocessors and related intellectual property. With a market cap of around $142.68B, Arm’s innovative solutions cater to various industries, such as automotive, consumer electronics, and IoT. As a subsidiary of Kronos II LLC, Arm’s technology underpins a significant portion of the world’s mobile and computing devices, driving efficiency and performance in a highly competitive market.
Key similarities and differences
Both Cadence and Arm operate within the technology sector, focusing on semiconductor-related solutions. However, Cadence primarily emphasizes software tools for IC design and verification, while Arm specializes in the architecture and licensing of microprocessors and systems IPs. This distinction highlights Cadence’s role in design methodologies versus Arm’s focus on hardware architecture and licensing.
Income Statement Comparison
Below is a comparison of the most recent income statements for Cadence Design Systems, Inc. (CDNS) and Arm Holdings plc (ARM), providing insights into their financial performance.
| Metric | CDNS | ARM |
|---|---|---|
| Market Cap | 84.88B | 142.68B |
| Revenue | 4.64B | 4.01B |
| EBITDA | 1.67B | 902M |
| EBIT | 1.47B | 720M |
| Net Income | 1.06B | 792M |
| EPS | 3.89 | 0.75 |
| Fiscal Year | 2024 | 2025 |
Interpretation of Income Statement
In the latest fiscal year, CDNS reported a revenue increase of approximately 61% compared to the previous year, with stable net income growth, indicating effective cost management and a robust demand for its software solutions. Meanwhile, ARM’s revenue growth of 24% reflects a strong market position, albeit with a smaller net income increase. Notably, both companies maintained healthy operating margins, with CDNS showcasing superior profitability metrics. The growth trajectory for both companies suggests a positive outlook, though caution is warranted due to potential market volatility and competitive pressures.
Financial Ratios Comparison
The table below compares key financial ratios for Cadence Design Systems, Inc. (CDNS) and Arm Holdings plc (ARM), providing insights into their performance.
| Metric | CDNS | ARM |
|---|---|---|
| ROE | 22.58% | 11.58% |
| ROIC | 13.43% | 11.31% |
| P/E | 77.20 | 141.58 |
| P/B | 17.44 | 16.40 |
| Current Ratio | 2.93 | 5.20 |
| Quick Ratio | 2.74 | 5.20 |
| D/E | 0.55 | 0.05 |
| Debt-to-Assets | 28.80% | 3.99% |
| Interest Coverage | 17.77 | – |
| Asset Turnover | 0.52 | 0.45 |
| Fixed Asset Turnover | 7.68 | 5.61 |
| Payout Ratio | 0% | 0% |
| Dividend Yield | 0% | 0% |
Interpretation of Financial Ratios
Cadence Design Systems shows strong performance with a high ROE and ROIC, indicating effective use of equity and capital. Despite its high P/E ratio, suggesting high market expectations, its strong current and quick ratios reflect good liquidity. In contrast, Arm’s ratios signal potential concerns, especially with its extremely high P/E, which may indicate overvaluation, and lower profitability ratios. Both companies maintain a zero payout ratio, indicating a focus on growth over dividends.
Dividend and Shareholder Returns
Cadence Design Systems, Inc. (CDNS) does not pay dividends, reflecting its commitment to reinvestment and growth. The company focuses on strategic R&D and acquisitions, vital for long-term shareholder value. Meanwhile, Arm Holdings plc (ARM) also abstains from dividends, prioritizing growth initiatives over immediate returns. Both companies engage in share buybacks, indicating a confidence in their valuation and future prospects. Overall, their strategies align with sustainable long-term value creation for shareholders, although the lack of dividends may deter income-focused investors.
Strategic Positioning
Cadence Design Systems (CDNS) holds a significant market share in the software application industry, providing critical tools for integrated circuit design and verification. With a market cap of $84.88B, it competes against other major players, including Arm Holdings (ARM), which, despite being in the semiconductor industry, also overlaps in some technology sectors. The competitive landscape is marked by rapid technological advancements and pressure to innovate, particularly with the rise of AI and IoT applications. Both companies must navigate these challenges to maintain their market positions.
Stock Comparison
In this section, I will evaluate the stock performance of Cadence Design Systems, Inc. (CDNS) and Arm Holdings plc (ARM) over the past year, highlighting key price movements and trading dynamics.
Trend Analysis
Cadence Design Systems, Inc. (CDNS) Over the past year, CDNS experienced a price change of +23.4%, indicating a bullish trend. Despite this positive movement, the recent data shows a decline of -9.21% from September 14, 2025, to November 30, 2025, suggesting a potential shift in market sentiment. The highest price recorded during this period was 373.35, while the lowest was 232.88. The acceleration status is currently in deceleration, with a standard deviation of 29.13 indicating moderate volatility.
Arm Holdings plc (ARM) ARM demonstrated a remarkable price change of +102.18% over the past year, confirming a bullish trend as well. However, the recent analysis reveals a dip of -10.01% from September 14, 2025, to November 30, 2025. The stock reached a high of 181.19 and a low of 67.05 during this period. Similar to CDNS, the acceleration status is in deceleration, with a standard deviation of 23.44 reflecting slightly lower volatility compared to CDNS.
Both stocks exhibit recent downward trends despite their overall bullish performance throughout the year, warranting careful observation as market conditions evolve.
Analyst Opinions
Recent analyst recommendations for Cadence Design Systems, Inc. (CDNS) show a “Buy” rating, primarily due to strong return on assets and equity metrics, highlighting its solid financial health. Analysts emphasize the company’s robust market position and growth potential. In contrast, Arm Holdings plc (ARM) has received a “Hold” rating, with analysts noting challenges in its price-to-earnings ratio and overall score. The consensus for CDNS remains bullish, while ARM is viewed more cautiously. Overall, the consensus leans towards a “Buy” for CDNS and a “Hold” for ARM in 2025.
Stock Grades
In the current market landscape, it’s crucial to stay informed about stock ratings from reputable sources. Here’s a breakdown of the recent grades for Cadence Design Systems and Arm Holdings.
Cadence Design Systems, Inc. Grades
| Grading Company | Action | New Grade | Date |
|---|---|---|---|
| JP Morgan | maintain | Overweight | 2025-10-28 |
| Rosenblatt | maintain | Neutral | 2025-10-28 |
| Needham | maintain | Buy | 2025-10-28 |
| Wells Fargo | maintain | Overweight | 2025-10-28 |
| Oppenheimer | maintain | Underperform | 2025-10-28 |
| Baird | maintain | Outperform | 2025-10-28 |
| Rosenblatt | maintain | Neutral | 2025-10-22 |
| Keybanc | maintain | Overweight | 2025-07-29 |
| JP Morgan | maintain | Overweight | 2025-07-29 |
| Stifel | maintain | Buy | 2025-07-29 |
Arm Holdings plc American Depositary Shares Grades
| Grading Company | Action | New Grade | Date |
|---|---|---|---|
| Loop Capital | maintain | Buy | 2025-11-12 |
| Benchmark | maintain | Hold | 2025-11-06 |
| Keybanc | maintain | Overweight | 2025-11-06 |
| Needham | maintain | Hold | 2025-11-06 |
| Mizuho | maintain | Outperform | 2025-11-06 |
| Barclays | maintain | Overweight | 2025-11-06 |
| UBS | maintain | Buy | 2025-11-06 |
| TD Cowen | maintain | Buy | 2025-11-06 |
| Rosenblatt | maintain | Buy | 2025-11-06 |
| JP Morgan | maintain | Overweight | 2025-11-06 |
Overall, both Cadence Design Systems and Arm Holdings have maintained strong positions in their respective markets, with a predominance of “Overweight” and “Buy” ratings. This trend suggests investor confidence in their growth potential, but caution is advised, especially with any “Underperform” ratings present.
Target Prices
The current target consensus for Cadence Design Systems, Inc. (CDNS) and Arm Holdings plc (ARM) indicates optimistic growth projections from analysts.
| Company | Target High | Target Low | Consensus |
|---|---|---|---|
| Cadence Design Systems, Inc. (CDNS) | 418 | 355 | 396.14 |
| Arm Holdings plc (ARM) | 210 | 190 | 200 |
Analysts expect CDNS to reach a consensus target price of 396.14, while ARM’s consensus stands at 200. Given that CDNS is currently priced at 311.84 and ARM at 135.11, both stocks appear to have significant upside potential.
Strengths and Weaknesses
In the following table, I present a comparison of the strengths and weaknesses of Cadence Design Systems, Inc. (CDNS) and Arm Holdings plc (ARM). This analysis will help you gauge which company may align better with your investment strategy.
| Criterion | Cadence Design Systems (CDNS) | Arm Holdings (ARM) |
|---|---|---|
| Diversification | Strong across various tech sectors | Limited, focused on semiconductor technology |
| Profitability | Net profit margin: 22.74% | Net profit margin: 19.77% |
| Innovation | High investment in R&D | Strong focus on CPU and IP development |
| Global presence | Operates worldwide | Presence in key markets globally |
| Market Share | Significant in software sector | Leading in semiconductor IP |
| Debt level | Moderate debt-to-equity ratio: 0.55 | Very low debt-to-equity ratio: 0.05 |
Key takeaways from this analysis suggest that while Cadence Design Systems excels in diversification and profitability, Arm Holdings demonstrates significant strengths in innovation and a robust market presence in semiconductors. However, Arm’s limited diversification could pose risks in volatile markets.
Risk Analysis
In the following table, I present a risk assessment for two companies, Cadence Design Systems, Inc. (CDNS) and Arm Holdings plc (ARM), highlighting various risk factors that could impact their performance.
| Metric | Cadence Design Systems (CDNS) | Arm Holdings (ARM) |
|---|---|---|
| Market Risk | Moderate | High |
| Regulatory Risk | Low | Moderate |
| Operational Risk | Low | Moderate |
| Environmental Risk | Moderate | Moderate |
| Geopolitical Risk | Low | High |
Both companies face unique risks, with Arm Holdings experiencing higher exposure, particularly to market and geopolitical risks due to its international operations and reliance on semiconductor demand. As of 2025, global semiconductor shortages and regulatory scrutiny in tech could significantly impact ARM’s growth.
Which one to choose?
When comparing Cadence Design Systems, Inc. (CDNS) and Arm Holdings plc (ARM), I observe that both companies are in a bullish stock trend. CDNS has a market capitalization of approximately $81.5B, while ARM stands at about $112.1B. CDNS boasts higher profit margins, with a net profit margin of 22.7% compared to ARM’s 19.8%. In terms of valuation, CDNS has a price-to-earnings (P/E) ratio of 77.2, whereas ARM’s ratio is significantly higher at 141.6, indicating a premium valuation. Analyst ratings are slightly in favor of CDNS with a solid B rating, compared to ARM’s B-.
Investors focused on growth may prefer CDNS due to its higher profitability and lower valuation metrics, while those attracted to emerging markets might consider ARM for its expansive growth potential. However, both companies face risks including market dependence and competition within their respective sectors.
Disclaimer: This article is not financial advice. Each investor is responsible for their own investment decisions.
Go further
I encourage you to read the complete analyses of Cadence Design Systems, Inc. and Arm Holdings plc American Depositary Shares to enhance your investment decisions:
