Teradata Corporation (TDC) | The Buildout — AI Infrastructure
The Verdict
Teradata sells a data-and-analytics platform that enterprises use to store, govern, and query large volumes of operational data. The company is repositioning that platform as what it calls an autonomous AI and knowledge platform — the governed data and context layer that enterprise AI agents read from and act on. Its pitch leans on hybrid and on-premises deployments for regulated and sovereign buyers that cannot or will not put everything in a public cloud.
| Market Cap | — |
| Revenue (TTM) | $1.7B |
| Revenue Growth | +1.0% |
| EBITDA Margin (TTM) | 13.2% |
| Net Cash | $315M |
| Earnings Beats | 7 of 7 |
| P/E (TTM) | — |
| EV/EBITDA (TTM) | — |
What We Like
- Non-GAAP operating margin was 21.5% in Q2 versus 16.4% a year earlier; year-to-date it was 24.5%, up 540 bps.
- Adjusted free cash flow was $127M in Q2, up 226% YoY; the FY2026 guide was raised twice.
- Net cash was $323M at the end of Q2, up $528M year over year, after repaying the remaining $450M term loan.
- Recurring revenue gross margin was 67.8%, up 30 bps YoY, and management reaffirmed a 2%–4% FY total ARR range.
- Teradata Factory, the Dell-built on-prem GPU appliance, took orders before general availability, expected in H2 2026.
What We’re Watching
- Total ARR growth slowed to 1% reported in Q2 from 3% in Q1; the FY 2%–4% range needs the majority of growth in Q4.
- Cloud ARR growth slowed to 8% reported from 13%; the low-double-digit cloud target was not formally reaffirmed.
- Consulting services revenue fell 24% YoY in Q2 after −14% in Q1; management says bookings and backlog are growing.
- Q3 is guided down on ASC 606 timing, and memory/component costs are named as a variable into FY2027.
The thesis reads as mixed but gradually improving. Margins, cash flow, and the balance sheet have moved decisively in one direction, and product delivery has kept pace with the repositioning — the Autonomous Knowledge Platform and AI Studio reached general availability a couple of months after being announced. The top line has not followed: total ARR growth slowed to 1% reported in Q2, consulting keeps shrinking at a double-digit rate, and H2 revenue is guided down. The open question is whether enterprise AI interest converts into net-new ARR rather than utilization of capacity customers already bought.
Earnings Beat
Teradata's Q2 FY2026 revenue was $410M, flat year over year and two points above the high end of guidance. Recurring revenue rose 3% to $363M, about 90% of the total, and total gross margin was 59.3%. The standout was margin: non-GAAP operating margin was 21.5% versus 16.4% a year earlier. Total ARR grew 1% as reported, slowing from 3% in Q1, and consulting services revenue fell 24% to $39M.
| Metric | Q2 FY2026 | Q1 FY2026 | Q2 FY2025 | YoY |
|---|---|---|---|---|
| Revenue | $410M | $444M | $408M | +0.5% |
| Gross margin | 59.3% | 62.2% | 56.4% | +290bps |
| EBITDA | $71M | −$11M | $47M | +51.1% |
| EPS | $0.48 | $3.47 | $0.09 | +410.0% |
| Total ARR growth (reported) | +1% | +3% | n/a | — |
| Cloud ARR growth (reported) | +8% | +13% | n/a | — |
What we're really going to see is increased utilization of the existing Teradata platform… It's essentially utilizing capacity and capability that they've already bought from Teradata… it does give a lag to the growth that we see from an ARR perspective.— Steve McMillan, CEO, 2026-08-04
Management tone: Q1 2026 was framed as a "strong start to 2026"; Q2 kept a "solid quarter" framing even though total revenue was flat and Q3 was guided negative. Management stayed confident on cost, cash, capital structure, and product velocity, and deliberately non-committal on near-term AI revenue. On the cloud ARR deceleration, they redirected the discussion to total ARR and hybrid deployments.
Management Guidance
For FY2026, management held total ARR growth at 2%–4%, total revenue at −2% to 0%, and recurring revenue at 0%–2%, while raising non-GAAP EPS to $2.65–$2.73 and adjusted free cash flow guidance from $320M–$340M. For Q3 it guided recurring revenue to −4% to −2%, total revenue to −6% to −4%, and non-GAAP EPS to $0.55–$0.59, with a non-GAAP tax rate around 23% and 96.7M weighted average diluted shares. Management said the majority of total ARR growth will come in Q4, that recurring revenue will decline slightly each quarter of the second half, and that Teradata Factory will not be material to FY2026. New-product upside is not factored into the guide.
Trajectory
Revenue has moved in a narrow band: $408M in Q2 FY2025, then $416M, $421M, and $444M in Q1 FY2026, before $410M in Q2 FY2026. The Q1 step-up came from upfront on-premises subscription revenue that management says displaced revenue recognition out of the second half, and Q3 is guided down. Margins moved up: total gross margin went from 56.4% a year ago to 59.3%, and non-GAAP operating margin from 16.4% to 21.5%, on a richer recurring-revenue mix. Q1 FY2026 EBITDA of −$11M reflects the $121M of SAP settlement legal fees booked that quarter; Q2 EBITDA was $71M.
The Model
The model projects FY+1 revenue of $1,646M with EBITDA of $323M, a 19.6% margin, and FY+2 revenue of $1,705M with EBITDA of $360M, a 21.1% margin. Near term, the anchor is a business whose recurring base is about 90% of revenue and whose FY2026 guide holds total ARR growth at 2%–4% even as Q3 revenue is guided down on revenue-recognition timing. FY+2 assumes the AI products shipping now — the Autonomous Knowledge Platform, AI Studio, and Teradata Factory — begin contributing, with mix staying toward recurring.
| Metric | FY2025 | Next FY (E) | Following FY (E) |
|---|---|---|---|
| Revenue | $1.7B | $1.6B | $1.7B |
| YoY Growth | — | −1.0% | +3.6% |
| EBITDA | $297M | $323M | $360M |
| EBITDA Margin | 17.9% | 19.6% | 21.1% |
Projections are the median of 5 independent model runs. The model’s revenue sits 1.4% above analyst consensus.
For FY2026, management held total ARR growth at 2%–4%, total revenue at −2% to 0%, and recurring revenue at 0%–2%, while raising non-GAAP EPS to $2.65–$2.73 and adjusted free cash flow guidance from $320M–$340M. For Q3 it guided recurring revenue to −4% to −2%, total revenue to −6% to −4%, and non-GAAP EPS to $0.55–$0.59, with a non-GAAP tax rate around 23% and 96.7M weighted average diluted shares. Management said the majority of total ARR growth will come in Q4, that recurring revenue will decline slightly each quarter of the second half, and that Teradata Factory will not be material to FY2026. New-product upside is not factored into the guide.
What Could Go Right — and Wrong
- AI-attached pipeline converts to net-new ARR rather than just utilization of capacity customers already bought.
- Teradata Factory's pre-general-availability orders convert to shipments after the H2 2026 launch, pulling through AI Studio and services.
- The Q4 renewal quarter lands total ARR growth within the 2%–4% full-year range.
- Consulting services stabilizes as management's bookings and backlog growth converts into revenue.
- Component-cost inflation is offset by pricing actions and Dell's buying power, protecting margins into FY2027.
- Retention continues to improve through the second half, as management says it has in the first.
- The AI monetization lag proves structural rather than transitional, capping AI-driven ARR regardless of demand.
- The Q4-weighted ARR ramp misses, breaking the full-year 2%–4% range.
- Cloud ARR keeps decelerating toward single digits and the low-double-digit target is formally walked back.
- Consulting services keeps shrinking faster than its margin math improves.
- Memory and component costs stay elevated into FY2027 and pricing actions fail to fully offset them.
- A disruption at Flex, the sole-source assembler of Teradata hardware, interrupts shipments.
Looking Ahead
The next 12 months turn on two things: whether Teradata Factory reaches general availability in H2 2026 and its pre-GA orders convert to shipments, and whether the Q4 renewal quarter delivers the majority of the year's ARR growth that the 2%–4% guide requires. Reported revenue turns negative before it turns up, with Q3 guided down on ASC 606 timing. Management points to FY2027 for meaningful AI-product revenue and for the component-cost picture to play out, and flags the $57M of SAP-related tax payments falling across Q2 to Q4 2026.
- 2026-09-09Citi TMT conference — CEO Steve McMillan presents; any incremental commitments.
- H2 2026Teradata Factory GA — Pre-GA orders convert to shipments; Dell go-to-market ramp.
- Q4 2026Q4 renewal quarter — Management expects the majority of FY2026 ARR growth here.
- 2026Planned announcements — Management pointed to a series of announcements this year.
- FY2027AI product monetization — New AI products expected to matter financially from FY2027.
Financials
Annual Summary
| Metric | FY2024 | FY2025 | TTM | YoY |
|---|---|---|---|---|
| Revenue | $1.8B | $1.7B | $1.7B | -5.0% |
| Gross Margin | 60.5% | 59.4% | 60.9% | 100bps |
| EBITDA | $309M | $297M | $224M | -3.9% |
| EBITDA Margin | 17.7% | 17.9% | 13.2% | +20bps |
| Net Income | $114M | $130M | $458M | +14.0% |
| Free Cash Flow | $295M | $296M | $745M | — |
| Net Cash | — | — | — | — |
Key Ratios (Trailing)
- P/E TTM—
- EV/EBITDA TTM—
- EV/Revenue TTM—
- Price/FCF TTM—
- Gross Margin (TTM)60.9%
- EBITDA Margin (TTM)13.2%
- Net Margin (TTM)27.1%
- ROIC36.7%
- FCF Conversion332.6%
- SBC / Revenue7.2%
The Company
Teradata provides an autonomous AI and knowledge platform built for enterprise-grade workloads, on a massively parallel architecture with patented workload management. The platform supports hybrid, multi-cloud, and on-premises deployments and includes capabilities for agentic AI at scale. Named products include the Teradata platform, ClearScape Analytics, QueryGrid, Teradata AI Factory, Teradata AgentBuilder, Autonomous Customer Intelligence, and an MCP Server, plus Teradata Cloud, the Autonomous Knowledge Platform, AI Studio, Tera, and a Data Analyst Agent. It sells into companies that must govern large volumes of operational data — and now, into the AI agents those companies want to run on top of it.
Teradata reports two operating segments: Product Sales, covering subscription and perpetual licenses and related hardware, and Consulting Services, covering consulting, support, managed services, and a small AI services practice. Recurring revenue is about 90% of the total. Its only named physical site is a corporate headquarters and data lab in San Diego, California. Hardware components are assembled and configured by Flex Ltd., servers are bought from Dell, storage disk systems from NetApp, and GPUs from NVIDIA; Dell is also the co-build and go-to-market partner for the Teradata Factory appliance. There are no named data centers, power purchase agreements, or grid contracts in the record.
Business Segments
Competitive Landscape
The 10-K names the participant set plainly: "Participants include AWS, Databricks, Google Cloud, Microsoft Azure, Snowflake, and more." When analysts pressed on whether enterprises are consolidating onto Databricks or Snowflake, management answered with a differentiation narrative — an agent harness, a context layer, and avoidance of vendor lock-in — rather than acknowledging share loss. The record's competitive evidence points the other way in specific deals: an EMEA retailer win-back after an evaluation on price-performance, and an India government agency choosing a native object store on a requirement management says no competing platform could meet. Management also argues that agentic workloads are large, high-concurrency, and complex, which it says fits its platform's massively parallel architecture and patented workload management.
- AWSNamed in the 10-K as a participant; also a distribution partner, with the Data Analyst Agent available in AWS Marketplace.
- DatabricksNamed in filings; analysts asked whether customers standardize on it. Management answered with a differentiation narrative rather than acknowledging share loss.
- Google CloudNamed in the 10-K as a participant; also a partner, with the Teradata platform running natively on Google Distributed Cloud air-gapped.
- Microsoft AzureNamed in the 10-K as a participant; also a partner through the Data Analyst Agent on Microsoft Marketplace and the OneLake integration.
- SnowflakeNamed in filings; part of the consolidation question analysts raised. Management responded with the agent-harness and context-layer narrative.
Supply Chain
Teradata outsources hardware assembly and key components and concentrates on its software platform. Its disclosed chain runs through one sole-source contract manufacturer, three named component suppliers, and Dell, which supplies servers and co-builds the Teradata Factory appliance.
More on TDC: Earnings recap