Cadence Design Systems Q2 Earnings Call Highlights

Cadence Design Systems (NASDAQ:CDNS) reported second-quarter 2026 results that exceeded its guidance, supported by demand for AI-driven design tools and broad-based growth across its businesses. The company raised its full-year outlook, citing accelerating design activity, record backlog and continued customer investment in AI and high-performance computing.

Revenue for the second quarter rose 24% year over year to $1.584 billion. Cadence reported GAAP operating margin of 28.4% and non-GAAP operating margin of 45.5%. GAAP earnings per share were $1.33, while non-GAAP EPS was $2.11.

Cadence ended the quarter with a record backlog of $8.1 billion. Operating cash flow was $635 million, and the company repurchased $200 million of its shares during the quarter. Cash totaled $1.44 billion, while debt outstanding had a principal value of $2.5 billion.

Full-Year Outlook Raised

Chief Executive Officer Anirudh Devgan said the company’s results reflected growing demand for solutions used in both “design for AI” and “AI for design.” He said Cadence now expects 19% revenue growth for 2026, with higher profitability as the company becomes more strategically involved in customer design programs.

For the full year, Cadence expects:

• Revenue of $6.26 billion to $6.34 billion.
• GAAP operating margin of 27.75% to 28.75%.
• Non-GAAP operating margin of 43.75% to 44.75%.
• GAAP EPS of $4.76 to $4.86.
• Non-GAAP EPS of $8.05 to $8.15.
• Operating cash flow of approximately $2 billion.

At the midpoint of its outlook, Cadence expects revenue growth of 19%, non-GAAP operating margin of 44.25% and non-GAAP EPS of $8.10. The forecast assumes that existing export-control regulations remain substantially similar through the remainder of the year, according to Chief Financial Officer John Wall.

For the third quarter, Cadence forecast revenue of $1.595 billion to $1.625 billion and non-GAAP EPS of $2.01 to $2.07.

Agentic AI Seen Expanding Design Demand

Devgan emphasized Cadence’s approach to agentic AI, which combines computing and data, physics-based design and simulation tools, and AI agents that orchestrate engineering workflows. He said autonomous agents can expand the number of design alternatives explored and invoke Cadence’s underlying tools more frequently, creating a potential long-term expansion of the company’s addressable market.

“Agentic AI is a demand accelerator for Cadence,” Devgan said during prepared remarks.

Cadence introduced AuraStack AI Super Agent for printed circuit board and advanced packaging design, which the company said can provide up to 15 times higher productivity and reduce time to market by up to half. Its ChipStack AI Super Agent has more than 20 customer engagements and is deployed in production across multiple chip designs, Devgan said. Cadence also cited customer results of more than 40 times faster RTL validation in one advanced-node design, reducing a typical five-week verification cycle to less than a day.

ViraStack, the company’s agentic AI offering for analog and custom design, has more than 25 customer engagements and has produced productivity improvements ranging from two times to 10 times in customer use cases, according to Devgan. He said InnoStack is also gaining adoption for advanced-node system-on-chip design, including a collaboration with Rapidus targeting up to two times faster design turnaround.

Wall said the company is seeing more customer evaluations, pilots and early deployments. However, he said Cadence is not assuming a “sudden step function” from agentic AI in its guidance, even as it expects monetization through both new workflow products and increased usage of core design engines.

Growth Across Product Groups

Cadence said every product group posted double-digit year-over-year growth in the quarter. The intellectual property business grew more than 40%, fueled by demand in AI and HPC applications for PCIe, UCIe, HBM and LPDDR6 IP. Devgan said most of that growth was organic and attributed the performance to stronger IP quality, a focus on leading-node and AI-related IP, and a broader set of foundry relationships.

The company also announced a multi-year collaboration with Intel centered on enabling its 14A process technology. The arrangement includes design IP, agentic AI-based electronic design automation tools, and design-technology co-optimization work for HPC and mobile designs. Devgan described the agreement as incremental to Cadence’s existing Intel business, with some benefit this year and most of the contribution expected over multiple years.

Cadence expanded its collaboration with Samsung Foundry on two-nanometer and 3D IC technologies as well. Devgan said the company’s relationships with Intel and Samsung have improved after Cadence had historically been stronger in the TSMC ecosystem.

Core EDA revenue grew 18% year over year, led by adoption of AI tools and expanded use of digital implementation and sign-off products. The company also reported a significant competitive analog-design win for its Spectre platform and several production wins for its Spectre FX FastSPICE simulator.

Hardware and Systems Design Strength

Cadence’s hardware business delivered another record quarter, driven by demand for Palladium Z3 and Protium X3 systems. Wall said demand remains particularly strong among AI and HPC customers, including hyperscalers and semiconductor companies, and that hardware remains supply-constrained rather than demand-constrained.

“We’re building the systems as quickly as we can to deliver against the backlog,” Wall said. He added that Cadence expects 2026 to be another record year for hardware.

System design and analysis revenue increased 37% year over year. Cadence said adoption of its advanced packaging and PCB tools is increasing as AI system complexity grows. The company also cited customer interest in combining electrical, computational fluid dynamics and structural simulation capabilities, including applications related to physical AI.

Wall said the integration of Hexagon’s design and engineering business is progressing as expected and contributed to systems design and analysis growth. He noted that Cadence expects targeted investments in the second half, including integration work and investments tied to opportunities such as Intel, to modestly reduce second-half margins compared with the first half. He characterized the spending as deliberate investment rather than deterioration in the company’s underlying business model.

Recurring revenue grew about 24% year over year in the second quarter, Wall said, supported by core EDA growth, renewals, market-share gains and add-on business. Hexagon contributed roughly four percentage points to recurring revenue growth, he said. Cadence continues to expect its full-year revenue mix to be approximately 80% recurring and 20% upfront.

About Cadence Design Systems (NASDAQ:CDNS)

Cadence Design Systems, Inc (NASDAQ: CDNS) is a global provider of electronic design automation (EDA) software, hardware and intellectual property used to design and verify advanced semiconductor chips, systems-on-chip (SoCs), printed circuit boards (PCBs) and packaging. Headquartered in San Jose, California and founded in 1988, Cadence serves semiconductor companies, original equipment manufacturers and system designers across the globe, helping customers accelerate design cycles and manage the complexity of modern integrated systems.

The company’s offerings span software tools for digital, custom/analog and mixed-signal design, verification and signoff, as well as solutions for system-level modeling, thermal and signal integrity analysis, and PCB and package design.