At today's price, Cadence's stock is pricing in about 21.0% annual free-cash-flow growth for the next ten years. Over the past five years, the company's actual FCF grew 11.3% a year — about half of what the market is now asking for, though the most recent quarter's 24.2% revenue growth already exceeds it.
At its current price, CDNS implies ~21.0% annual FCF growth for the next 10 years, discounted at 10%.
Cadence's actual 5-year FCF growth has averaged just 11.3% a year.
Required growth vs. historical growth
Required growth from the reverse DCF below. Historical CAGRs from 10-K FY2021-FY2025. Most recent quarter is Q2 FY2026 revenue of $1,584M vs. $1,275M a year earlier, per the Jul 28, 2026 earnings call and 10-Q.
Sensitivity: what if the discount rate moves?
| WACC | Required growth |
|---|---|
| 8% | 16.0% |
| 9% | 18.6% |
| 10% (base case) | 21.0% |
| 11% | 23.3% |
| 12% | 25.4% |
Even at a conservative 8% discount rate, the market still requires 16% growth — well above the 5-year FCF CAGR of 11.3%. The conclusion doesn't change much regardless of the discount-rate assumption.
What would move this number
- Using FY2025's standalone annual FCF ($1,586.9M) instead of trailing-twelve-month FCF ($1,678.7M) raises the required growth rate slightly, to 21.8%.
- A February 2026 acquisition (Hexagon's D&E division) flipped Cadence's balance sheet from net cash (-$521M at year-end 2025) to net debt (+$1,042M by mid-2026) — but relative to the $88B market cap, this moves the required growth rate by only about +0.2 percentage points.
- Raising the terminal growth rate from 2.5% to 3.0% lowers the required growth rate slightly, but not enough to change the overall conclusion.
Show your work
Inputs, sources, model assumptions, and the calculation
- Share price$319.02 — stockanalysis.com, Aug 21, 2026 close
- Diluted shares outstanding276.163M — 10-Q Q2 FY2026, 3-month weighted-average diluted shares
- Market cap$88,101.5M — price × diluted shares (calculated)
- Trailing-twelve-month FCF$1,678.7M — FY2025 annual FCF ($1,586.9M) minus 1H2025 FCF ($797.5M) plus 1H2026 FCF ($889.3M)
- Net debt$1,041.8M — 10-Q Q2 FY2026 (Jun 30, 2026): $2,482.2M long-term debt minus $1,440.4M cash
- Discount rate (WACC)10% base case (8-12% tested)
- Terminal growth rate2.5% — long-run GDP-level assumption
Normalization check: TTM FCF ($1,678.7M) is +27.4% above the three-year average ($1,317.3M) — within the ±40% threshold, so used as-is without adjustment.
Model: free cash flow is assumed to grow at a constant annual rate g for 10 years, then at a 2.5% terminal rate thereafter, solved by bisection for the value of g that equates present value to today's enterprise value (market cap + net debt).
Historical CAGR check: 5-yr revenue CAGR = ($5,296.8M ÷ $2,988.2M)^(1/4) − 1 = 15.4%. 5-yr FCF CAGR = ($1,586.9M ÷ $1,035.7M)^(1/4) − 1 = 11.3%.
The fine print
- This isn't a fair-value price target — it only shows what the current price already assumes.
- Change the discount rate, the FCF base, the projection window, or the terminal growth rate, and the answer moves — see the sensitivity table above.
- A reverse DCF shows what the market currently expects — it does not say what the stock is "worth."
- Whether 21.0% growth is realistic depends on whether AI-driven chip-design demand keeps accelerating, as covered in the story piece above — not on this math alone.
- Any investment decision, and its outcome, is your own responsibility.
Frequently asked questions
What growth rate does CDNS's stock price assume?
At today's price, Cadence's stock is pricing in about 21.0% annual free-cash-flow growth for the next ten years, at a 10% discount rate.
How does that compare to Cadence's actual growth?
Cadence's actual 5-year FCF growth was 11.3% a year, and 5-year revenue growth was 15.4% a year — both below the market's 21.0% ask. However, the most recent quarter's revenue growth (24.2% year over year) already exceeds it, though a single strong quarter doesn't guarantee a decade-long pace.
What share price was used for this analysis?
This analysis used $319.02, as of the Aug 21, 2026 close.