Earnings Recap — Q2 FY2026
CY Q3 2026 · Reported July 27, 2026 · Beat 7 of last 7 quarters
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Cadence's record backlog and raised guidance underscore accelerating AI infrastructure design activity, with hyperscalers and AI semiconductor companies investing aggressively in custom silicon. The strength in IP, hardware, and agentic AI tools signals deepening demand for EDA across the AI buildout, from advanced packaging to memory architectures.
Cadence delivered Q2 revenue of $1.584 billion, up 24% year-over-year, with all product groups growing double digits. IP grew over 40% YoY, core EDA grew 18%, and SDA grew 37%. Record backlog of $8.1 billion and non-GAAP operating margin of 45.5% exceeded guidance. Agentic AI traction continued with ChipStack, ViraStack, and InnoStack engagements, and the company announced expanded collaborations with Intel and Samsung Foundry. Hardware had another record quarter, and the company raised full-year guidance to 19% revenue growth.
Management raised full-year 2026 revenue guidance to $6.26–6.34 billion (19% growth at midpoint), up from the prior 17% outlook, and raised non-GAAP EPS to $8.05–8.15. They expect Q3 revenue of $1.595–1.625 billion and non-GAAP operating margin of 43.5–44.5%. The raise reflects broad-based strength across core EDA, IP, hardware, and SDA, with agentic AI contributing but not yet a step function. Management highlighted continued investment in Intel collaboration, Hexagon D&E integration, and SDA full-flow capabilities, with second-half margins slightly lower due to deliberate investments. They expect hardware to remain supply-constrained and see 2026 as another record hardware year.
“The AI transformation is driving strong, broad-based performance across both design for AI and AI for design fronts.”
on AI-driven demand
“We are seeing strong early traction across our AI Super Agent portfolio, with initial customer results demonstrating meaningful productivity improvement and better design outcomes.”
on Agentic AI adoption
“We continue to expect 2026 to be another record hardware year. I would profile hardware as that it still remains supply-constrained by customer demand rather than demand-constrained.”
on Hardware demand
Can you quantify the TAM expansion opportunity from agentic AI and how it might drive EDA as a % of R&D expense higher over time?
Anirudh said agentic AI opens a new TAM at the top layer and reinforces the middle layer of the three-layer cake. Customer interest is amazing, with almost all customers wanting to engage. John added that monetization will come through new workflow products and increased usage of underlying engines, but they are not assuming a sudden step function in guidance.
With open-source models like Kimi designing chips, does that drive higher usage of your EDA tools, and where is the differentiation versus customers building their own orchestration?
Anirudh said the three-layer cake framework is confirmed, with value in the agentic layer and knowledge graphs calling physically accurate tools. He noted Kimi's design was a small block at an old node and still required EDA tools. Differentiation lies in all three layers—agents, middle-layer tools, and hardware—and customers increasingly depend on Cadence for mission-critical tasks.
What's driving the IP business to over 40% growth, how much is organic vs inorganic, and what is the sustainable growth rate? Also, what is the Hexagon contribution and EPS dilution?
John said Hexagon is delivering as expected and contributing to SDA growth, but strength is broader. IP growth is driven by AI/HPC, advanced node activity, memory bandwidth, chiplets, and advanced packaging. Anirudh added that IP growth is mostly organic, driven by better IP quality, focused strategy on star IP, and a more diverse foundry ecosystem. He cautioned not to annualize one quarter.