Berkshire requires a 25–50% discount to intrinsic value before buying.
Buffett Quality Checklist
✓ROE >15% consistently (≥7 of last 10 years)
✓Free cash flow positive (≥8 of last 10 years)
–Conservative leverage — Debt/Equity below 1
✓Revenue growing at CAGR >5%
✓EPS growing at CAGR >5%
10-Year Financial History — SEC EDGAR 10-K Filings
Year▲
Revenue▲
Net Income▲
FCF▲
Owner Earnings▲
ROE▲
Net Margin▲
LT Debt▲
Cash▲
2015
$1.6B
$158.9M
$276.9M
$234.7M
11.9%
10.1%
—
$932.2M
2016
$1.8B
$203.1M
$391.2M
$269.0M
27.4%
11.2%
—
$465.2M
2017
$1.9B
$204.1M
$412.8M
$261.7M
20.6%
10.5%
—
$688.1M
2018
$2.1B
$345.8M
$543.2M
$403.0M
26.8%
16.2%
—
$533.3M
2019
$2.3B
$989.0M
$655.0M
$1.0B
47.0%
42.3%
—
$705.2M
2021
$2.7B
$590.6M
$810.1M
$641.5M
23.7%
22.0%
—
$928.4M
2022
$3.6B
$849.0M
$1.1B
$857.8M
30.9%
23.8%
—
$882.3M
2023
$4.1B
$1.0B
$1.2B
$1.1B
30.6%
25.5%
—
$1.0B
2024
$4.6B
$1.1B
$1.1B
$1.1B
22.6%
22.7%
—
$2.6B
2025
$5.3B
$1.1B
$1.6B
$1.2B
20.3%
20.9%
—
$3.0B
Warren & Charlie
Buffett / Munger — quality, moat & valuation
CADENCE DESIGN SYSTEMS INC (CDNS) — Investment Memo
🐂 The Bull Case (Warren's voice)
Moat is real and sticky – Chip design flows are custom, multi-year integrations. Ripping out Cadence’s toolchain risks tape-out delays that can cost $100M+ in lost revenue. Customers (Apple, NVIDIA, TSMC) are locked in.
Economics are exceptional – when they work – Zero debt, $1.6B free cash flow on $5.3B revenue (2025). Subscription model generates predictable cash; cost of duplicating software is near zero. FCF margin ~30% is best-in-class for enterprise software.
AI tailwind is real – Every new chip design is more complex, requiring more EDA licenses. Cadence’s AI-driven design tools (e.g., Cerebrus) increase customer dependency and willingness to pay.
Attractive entry price – If the stock falls to $156 (25% below DCF intrinsic of $208.51), the margin of safety compensates for the narrowing moat. At $104 (50% below), it’s a no-brainer for a business that still earns 20%+ ROE.
🐻 The Bear Case (Charlie inverts)
Open-source EDA eats the lunch – In 10 years, a credible open-source toolchain (e.g., Chisel + OpenROAD) could handle leading-edge chips. AI reduces the need for proprietary flows. If lock-in breaks, Cadence’s $5.3B revenue base evaporates.
Margin death spiral from competition – Net margin fell from 25.5% → 20.9% in two years despite 15% revenue growth. If Synopsys keeps pushing price wars and Cadence’s acquisition-driven growth fails to deliver margin leverage, ROE could slip below 15% – permanently impairing compounding.
China cliff – 14% of revenue from China. Export restrictions or a prolonged semiconductor decoupling could cut that to zero overnight. No replacement growth elsewhere for years.
Most likely structural threat – Margin erosion is already happening. Without a clear plan to reverse it, the business becomes a slow-growth cash cow with declining returns – not a compounding machine.
💰 Valuation & Margin of Safety
Intrinsic value estimate (DCF):$208.51 per share (15% FCF growth, 10% discount, 3% terminal)
25% margin of safety entry:$156.38
50% margin of safety entry:$104.26
Current price: Not provided, but given the DCF ~$208 and the bear-case risks, the stock likely trades above fair value (no margin of safety). Even at $208, the narrowing moat and management’s margin mistakes make a full position unwise.
Verdict: PASS
The moat of switching costs is legitimate, but the numbers – falling ROE, compressed margins, and undisciplined acquisitions – prove Cadence is losing its ability to capture value from that moat. At current prices, there is no margin of safety against the most likely structural threat (continued margin erosion), and the 10-year disruption risk from open-source EDA is non-trivial. We watch and wait for a wide-crack entry or a clear reversal in profitability.
Data sourced from SEC EDGAR XBRL filings (10-K only). For educational purposes — not investment advice.