Teradata Corporation (TDC) | The Buildout — AI Infrastructure
The Verdict
Teradata makes an enterprise data and analytics platform now recast as an autonomous AI and knowledge platform. Its architecture gives governed access to institutional data and business rules, so enterprises can run production AI and agents on-premises, in the cloud, or both. The company's role in the AI buildout is the context and governance layer that sits between enterprise data and the models and agents that need it.
| Market Cap | — |
| Revenue (TTM) | $1.7B |
| Revenue Growth | −0.8% |
| EBITDA Margin (TTM) | 11.8% |
| Net Cash | $263M |
| Earnings Beats | 7 of 7 |
| P/E (TTM) | — |
| EV/EBITDA (TTM) | — |
What We Like
- Recurring revenue grew for a third consecutive quarter in Q2 FY2026, reaching $363M, +3% reported / +2% cc.
- The balance sheet reset is complete: Teradata paid off the remaining $450M term loan and ended Q2 with $323M net cash, up $528M YoY.
- More than 50% of cloud customers also operate on-premises Teradata systems; sales incentives follow total ARR growth across cloud and on-prem.
- Early named wins span regulated and sovereign verticals: a South Asia telecom, a Japanese banking group, a North American financial institution, and a U.S. healthcare company.
- Management says peak cloud migrations were 'probably a year or two ago,' suggesting the legacy displacement headwind is fading.
What We’re Watching
- Cloud ARR decelerated to +8% reported in Q2 from +13% in Q1; management held the low-double-digit trend-line target.
- Q3 FY2026 guidance is negative: recurring revenue -4% to -2% and total revenue -6% to -4%, tied to ASC 606 timing.
- Consulting revenue fell 24% YoY in Q2, with gross margin flat; stated bookings and backlog growth have not yet reached the P&L.
- Memory and component price inflation is flagged as an FY27 challenge; Flex remains sole-source hardware assembler.
The strategic repositioning is strengthening on product delivery, balance sheet, and early proof points, but the core financial inflection is not yet demonstrated. Total ARR is still low single-digit growth, cloud ARR decelerated, and AI monetization is early. The open question is whether Q4 2026 renewals and Teradata Factory GA convert the 'Teradata 3.0' positioning into durable ARR acceleration.
Earnings Beat
In Q2 FY2026, Teradata reported total revenue of $410M, flat year over year, with recurring revenue of $363M, up 3% reported and 2% constant currency. Total gross margin was 60.5%, non-GAAP operating margin was 21.5%, and non-GAAP diluted EPS was $0.69, $0.12 above the top of guidance. Adjusted free cash flow was $127M, and net cash reached $323M.
| Metric | Q1 FY2026 | Q4 FY2025 | Q1 FY2025 | YoY |
|---|---|---|---|---|
| Revenue | $444M | $421M | $418M | +6.2% |
| Gross margin | 62.2% | 60.8% | 59.3% | +290bps |
| EBITDA | −$11M | $77M | $86M | −112.8% |
| EPS | $3.47 | $0.38 | $0.45 | +667.7% |
| Recurring revenue | $363M | $400M | n/a | +3% reported / +2% cc |
We've set a clear vision for this agentic AI era. We call it Teradata 3.0, and we have retooled our business for this clear opportunity of autonomous intelligence.— Steve McMillan, President and CEO, 2026-08-04
Management tone: Management's tone shifted from Q1's validation after a large recurring beat to a more directional strategic pivot around 'Teradata 3.0.' CFO Ederer was direct on accounting mechanics and capital allocation, while McMillan emphasized product delivery velocity and early customer wins.
Management Guidance
Full-year FY2026 guidance reaffirmed total ARR growth of 2% to 4%, recurring revenue growth of 0% to 2%, and total revenue growth of -2% to 0%. Non-GAAP diluted EPS was raised to $2.65 to $2.73 and adjusted free cash flow to $330M to $350M. Q3 recurring revenue is guided to -4% to -2% and total revenue to -6% to -4%, attributed to ASC 606 timing. Management expects the majority of total ARR growth in Q4.
Trajectory
Q1 FY2026 revenue rose 6% year over year to $444M, helped by upfront on-premises subscription revenue, while Q2 FY2026 revenue was $410M and flat year over year. Recurring revenue grew 12% reported in Q1, then 3% reported in Q2 as normalization played out. Total ARR growth stayed low single digits: +3% reported in Q1, +1% reported / +2% cc in Q2. Recurring gross margin spiked to 70.0% in Q1 on upfront revenue, then fell to 67.8% in Q2; total gross margin was 63.7% in Q1 and 60.5% in Q2. Q1 EBITDA was negative as a result of SAP settlement fees, not operating deterioration.
The Model
The model's locked FY+1 projection is revenue of $1,660M and EBITDA of $330M, a 19.9% EBITDA margin. FY+2 projects revenue of $1,740M and EBITDA of $353M, a 20.3% EBITDA margin. The near-term anchor is the stable recurring revenue base and management's full-year revenue guide of -2% to 0%, while the FY+2 step-up depends on new-product upside management has not embedded in guidance.
| Metric | FY2025 | Next FY (E) | Following FY (E) |
|---|---|---|---|
| Revenue | $1.7B | $1.7B | $1.7B |
| YoY Growth | — | −0.2% | +4.8% |
| EBITDA | $297M | $330M | $353M |
| EBITDA Margin | 17.9% | 19.9% | 20.3% |
Projections are the median of 5 independent model runs. The model’s revenue sits 3.5% above analyst consensus.
Full-year FY2026 guidance reaffirmed total ARR growth of 2% to 4%, recurring revenue growth of 0% to 2%, and total revenue growth of -2% to 0%. Non-GAAP diluted EPS was raised to $2.65 to $2.73 and adjusted free cash flow to $330M to $350M. Q3 recurring revenue is guided to -4% to -2% and total revenue to -6% to -4%, attributed to ASC 606 timing. Management expects the majority of total ARR growth in Q4.
What Could Go Right — and Wrong
- Q4 2026 total ARR growth lands at or above the high end of the 2%–4% full-year guide on renewals and expansions.
- Teradata Factory reaches GA in H2 2026 and converts early orders into durable ARR, with Dell co-sell adding channel.
- AI adoption moves beyond utilization of already-purchased capacity and becomes incremental ARR.
- Retention gains prove structural as cloud migration displacement fades.
- Consulting bookings and project backlog convert to revenue recovery and low-double-digit consulting margins.
- Q3 and Q4 declines are more than ASC 606 timing, and Q4 total ARR growth lands at the low end or below 2%–4%.
- Cloud ARR decelerates further below the low-double-digit trend line management still cites.
- Enterprise customers consolidate on hyperscaler or Databricks/Snowflake platforms and displace Teradata.
- FY27 memory and component cost pressure exceeds pricing and Dell buying power, compressing margins.
- Teradata Factory GA slips or Flex/Dell/NVIDIA supply failures delay the on-prem AI cycle.
Looking Ahead
The next twelve months test whether Teradata's strategic reset shows up in revenue. Teradata Factory is expected to reach general availability in H2 2026; early orders are already in hand and some deliveries have been expedited into this year. Q4 2026 is management's biggest renewal/expansion quarter and is expected to carry the majority of total ARR growth. Into 2027, the named risk is memory and component price inflation, which management has flagged as a challenge rather than a 2026 issue.
- Q3 FY2026Q3 reported results — Tests the -4% to -2% recurring and -6% to -4% total revenue guide.
- H2 2026Teradata Factory general availability — Tests early-order conversion and Dell channel contribution.
- Q4 2026Majority of total ARR growth — Tests Q4 renewal and expansion against the 2% to 4% FY26 guide.
- Q4 2026Retention improvement continues — Management expects H2 retention gains; Q4 is the large renewal quarter.
- FY27Memory and component pricing — Management flags memory as an FY27 challenge rather than FY26.
Financials
Annual Summary
| Metric | FY2024 | FY2025 | TTM | YoY |
|---|---|---|---|---|
| Revenue | $1.8B | $1.7B | $1.7B | -5.0% |
| Gross Margin | 60.5% | 59.4% | 60.2% | 100bps |
| EBITDA | $309M | $297M | $2.6B | -3.9% |
| EBITDA Margin | 17.7% | 17.9% | 11.8% | +20bps |
| Net Income | $114M | $130M | $421M | +14.0% |
| Free Cash Flow | $295M | $296M | $3.0B | — |
| Net Cash | — | — | — | — |
Key Ratios (Trailing)
- P/E TTM—
- EV/EBITDA TTM—
- EV/Revenue TTM—
- Price/FCF TTM—
- Gross Margin (TTM)60.2%
- EBITDA Margin (TTM)11.8%
- Net Margin (TTM)24.9%
- ROIC28.2%
- FCF Conversion339.5%
- SBC / Revenue7.0%
The Company
Teradata provides an enterprise data and analytics platform that management has repositioned as an autonomous AI and knowledge platform. Its architecture uses a massively parallel processing design with patented workload management to serve enterprise-grade workloads across hybrid, multi-cloud, and on-premises deployments. The company says it provides the 'institutional memory' and governed execution layer for production AI and autonomous agents.
Teradata operates through two segments: Product Sales, which includes the Teradata platform, ClearScape Analytics, QueryGrid, AgentBuilder, and the MCP server, and Consulting Services, which includes consulting, AI services, support, and managed services. The company is not vertically integrated in hardware; its hardware components are assembled and configured by Flex Ltd., and its corporate headquarters and data lab is in San Diego, California. It has no owned data centers or manufacturing.
Business Segments
Competitive Landscape
The 10-K names AWS, Databricks, Google Cloud, Microsoft Azure, and Snowflake as the competitive set. Management's stated argument is that customers are trying to avoid vendor lock-in, and Teradata's control points are the agent harness, the context layer, and the massively parallel architecture.
- AWSNamed in 10-K as competitor; also a marketplace distribution partner for Data Analyst Agent after Q2.
- DatabricksNamed in 10-K as a competitor.
- Google CloudNamed in 10-K as competitor; also partner for Google Distributed Cloud air-gapped and Google Cloud Marketplace.
- Microsoft AzureNamed in 10-K as competitor; Data Analyst Agent became available in Microsoft Marketplace.
- SnowflakeNamed in 10-K as a competitor.
Supply Chain
Teradata owns no data centers and depends on third-party assembly; it operates as a software and services layer deployed on customer premises or hyperscaler infrastructure.
More on TDC: Earnings recap