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    CDNS
    Earnings call· Jun 2026(Q2 FY26)

    CADENCE DESIGN SYSTEMS Q2 FY26 earnings call CDNS

    Jul 27, 2026 Source

    Executive summary

    Cadence Q2 FY26 — Record Backlog and Raised Full-Year Guidance Driven by AI Demand

    Cadence delivered strong Q2 FY26 results, exceeding guidance with broad-based growth across all product groups, fueled by accelerating AI-driven demand and a record $8.1 billion backlog. The company raised its full-year revenue and profitability outlook, emphasizing its strengthened competitive position and the significant TAM expansion opportunity presented by Agentic AI, while making strategic investments for future growth.

    Highlights

    5

    • Q2 FY26 revenue grew 24% year-over-year to $1.584 billion, exceeding guidance.

    • Full-year FY26 revenue guidance raised to 19% growth, reflecting strong business momentum.

    • Record backlog of $8.1 billion was achieved, above expectations.

    • IP business grew over 40% year-over-year, driven by AI and HPC applications.

    • Hardware business delivered another record quarter, with revenue growing 24% YoY.

    Concerns

    3

    • Q2 FY26 GAAP operating margin was 28.4%, lower than non-GAAP operating margin of 45.5%.

    • Second half FY26 operating margins are expected to be slightly lower than first half due to targeted investments in Hexagon integration and Intel collaboration.

    • Hardware business remains supply constrained by customer demand, limiting immediate revenue capture.

    Guidance & targets

    12
    CategoryTargetConfidence
    Full-year 2026 Revenue
    $6.260B-$6.340B
    high materiality
    High
    Full-year 2026 GAAP Operating Margin
    27.75%-28.75%
    medium materiality
    High
    Full-year 2026 Non-GAAP Operating Margin
    43.75%-44.75%
    high materiality
    High
    Full-year 2026 GAAP EPS
    $4.76-$4.86
    medium materiality
    High
    Full-year 2026 Non-GAAP EPS
    $8.05-$8.15
    high materiality
    High
    Full-year 2026 Operating Cash Flow
    approximately $2B
    medium materiality
    High
    Full-year 2026 Free Cash Flow Repurchase
    approximately 50%
    medium materiality
    High
    Q3 2026 Revenue
    $1.595B-$1.625B
    high materiality
    High
    Q3 2026 GAAP Operating Margin
    27.5%-28.5%
    medium materiality
    High
    Q3 2026 Non-GAAP Operating Margin
    43.5%-44.5%
    high materiality
    High
    Q3 2026 GAAP EPS
    $1.11-$1.17
    medium materiality
    High
    Q3 2026 Non-GAAP EPS
    $2.01-$2.07
    high materiality
    High

    Segment performance

    4
    SegmentRevenueYoYQoQMargin
    IP
    Outstanding quarter driven by AI, HPC, advanced node activity, memory bandwidth, chiplets, and advanced packaging. Most growth was organic.
    Strong adoption of Star IP portfolio in AI and HPC applications (PCIe, UCIe, HBM, LPDDR6)First-ever Tensilica DSP design win with STMicroelectronics
    		—over 40%——
    Core EDA
    Driven by growing adoption of AI solutions and proliferation of digital full flow solutions.
    Growing adoption of AI solutionsExpanded adoption of Tempus and Certus signoff toolsExpanded implementation and sign-off footprint at frontier AI companies and marquee ASIC silicon vendor
    		—18%——
    Hardware
    Delivered another record quarter, driven by strong demand from AI and HPC customers. Hardware-assisted design and verification is becoming a strategic capacity layer.
    Continued strength in Palladium Z3 and Protium X3Added 12 new logosMeaningful expansion with several marquee AI customersNotable competitive win with a major AI infrastructure provider
    		—24%——
    System Design and Analysis (SD&A)
    As AI system complexity increases, customers are turning to advanced packaging and PCB solutions. Strong customer interest in integrated full flow combining multiphysics products.
    Allegro X AI adopted by several customers for layout design time reduction3D-IC technology collaboration with TSMC's 3D fabricBETA CAE business competitive displacementsIntegration of Hexagon's D&E business progressing well with key deals closed
    		—37%——

    Operational metrics

    12
    Non-GAAP Operating Margin
    45.5%YoY change not stated
    Q2 FY26
    Non-GAAP EPS
    $2.11YoY change not stated
    Q2 FY26
    GAAP Operating Margin
    28.4%YoY change not stated
    Q2 FY26
    GAAP EPS
    $1.33YoY change not stated
    Q2 FY26
    Cash and investments balance
    $1.440BYoY change not stated
    Q2 FY26 end
    Principal value of debt outstanding
    $2.5BYoY change not stated
    Q2 FY26 end
    DSOs
    65YoY change not stated
    Q2 FY26
    Share repurchases
    $200MYoY change not stated
    Q2 FY26
    Recurring revenue growth
    24%YoY
    Q2 FY26

    Primarily driven by strong core EDA growth, AI-driven demand, share gains, and healthy renewals and expansions through add-on business.

    Recurring revenue mix
    ~80%
    FY26

    Expected full-year mix.

    Upfront revenue mix
    ~20%
    FY26

    Expected full-year mix.

    Bookings increase
    55%YoY increase
    H1 FY26

    Increase in bookings in the first half of the year versus the same period last year.

    Industry KPIs

    5
    MetricValueDetails
    Revenue growth$1.584BUSD
    Rpo current rpo$8.1BUSD
    Bookings billings55%%
    Operating FCF margin rule of 4045.5%%
    Ai product adoption monetization15x higher productivityx

    Orderbook & backlog

    1
    Total Backlog$8.1BQ2 FY26 end

    Record

    Above expectations.

    Product announcements

    5
    ProductTypeDetails
    AuraStack AI Super Agentlaunch
    ChipStack AI Super Agent (extension)update
    ViraStackupdate
    InnoStackupdate
    Allegro X AIupdate

    Deals & partnerships

    4
    IntelMultiyear engagement focused on enabling its 14A process, leveraging Cadence design IP and Agentic AI-based EDA to co-optimize tool flows and methodologies for next-generation HPC and mobile designs.multiyear

    Broader than IP, includes EDA and DTCO. All incremental to existing business. Also includes discussions on future roadmap and potential for Intel Foundry customers to acquire Cadence IP.

    Samsung FoundryDeepened collaboration on 2-nanometer and 3D-IC technologies, combining AI-driven flows and design IP to enable next-generation AI, HPC and mobile systems.

    Follows previous announcements.

    RapidusCollaboration to integrate Cadence InnoStack AI Super Agent into its AI agent design solution, targeting up to a 2x faster design turnaround.

    Part of Agentic AI traction.

    STMicroelectronicsSecured first-ever Tensilica DSP design win.

    Reinforces strength in automotive and audio applications.

    Risks & headwinds

    2
    Hardware business supply constraintscurrent

    supply constrained by customer demand rather than demand constrained

    Mitigation: building the systems as quickly as we can to deliver against the backlog

    Second half operating margin compressionsecond half of this year

    slightly lower margins than the first half

    Mitigation: making targeted investments in Hexagon integration and Intel collaboration to improve margins for next year

    What to watch in Q3 FY26

    5

    Agentic AI monetization

    next quarter and beyond
    CurrentEarly add-on business encouraging, opportunity developing well
    TargetIncreased monetization through new workflow products and increased usage of core tools

    Why it matters

    Agentic AI is a significant TAM expansion opportunity and a key growth driver.

    We continue to expect monetization through both new workflow products as well as increased usage of underlying engines. But just to be clear, we're still not assuming a sudden step function in our guidance. The opportunity is continuing to develop well though.

    Q&A highlights

    5

    Can Cadence quantify the long-term TAM expansion opportunity from Agentic AI and how it might increase EDA's share of R&D spend?

    Anirudh highlighted Agentic AI as a new TAM opportunity at the top layer while reinforcing the middle layer (physically accurate tools). He noted strong customer interest and early add-on business, contributing to the broad-based strength and raised guidance. John clarified that while the opportunity is developing well, current guidance doesn't assume a sudden step function in monetization.

    “The opportunity is continuing to develop well though.”

    asked by Joseph Quatrochi · answered by John Wall

    2 min read5 chapters

    Detailed Narrative

    01

    AI-Driven Design Transformation

    Cadence is experiencing strong demand for its AI-driven solutions, with the AI transformation driving broad-based performance in both "design for AI" and "AI for design." The company's Three-Layer Cake framework (accelerated compute, physics-based solvers, AI agents) is central to addressing exponential design complexity in hyperscaler infrastructure and physical AI, creating a durable tailwind and significant long-term TAM expansion.

    02

    Agentic AI Leadership and Traction

    Cadence extended its leadership in Agentic AI with AuraStack AI Super Agent, delivering up to 15x higher productivity and 2x faster time to market for PCB and advanced packaging design. ChipStack AI Super Agent has over 20 customer engagements and is deployed in production, with early results showing over 40x faster RTL validation. ViraStack and InnoStack are also gaining momentum with significant productivity improvements and customer interest.

    03

    Strategic Partnerships and Ecosystem Expansion

    The company expanded its multiyear collaboration with Intel for its 14A process, leveraging design IP and Agentic AI-based EDA, expected to be a meaningful growth driver. Deepened collaboration with Samsung Foundry on 2nm and 3D-IC technologies was also highlighted, combining AI-driven flows and design IP. A new partnership with Rapidus for InnoStack integration further underscores ecosystem engagement.

    04

    Broad-Based Business Strength

    All product groups delivered double-digit year-over-year growth. The IP business grew over 40%, driven by AI/HPC applications and strong adoption of Star IP. Core EDA grew 18% due to AI solutions and digital full flow adoption. Hardware delivered a record quarter with Palladium Z3 and Protium X3, adding 12 new logos. System Design and Analysis revenue grew 37%, benefiting from advanced packaging and PCB solutions, and the integration of Hexagon's D&E business.

    05

    Monetization of Agentic AI

    Management views Agentic AI as a demand accelerator, increasing usage of underlying EDA tools as agents explore more design alternatives. Monetization is expected through new workflow products and increased usage of core tools, with early add-on business being encouraging. The company clarified that current guidance doesn't assume a sudden step function in monetization, as the opportunity is still developing.

    AI-generated summary of the company’s earnings call. Not investment advice.