It has been about a month since the last earnings report for Cadence Design Systems (CDNS Quick QuoteCDNS - Free Report) . Shares have added about 17.4% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Cadence due for a pullback? Well, first let's take a quick look at the most recent earnings report in order to get a better handle on the recent drivers for Cadence Design Systems, Inc. before we dive into how investors and analysts have reacted as of late.

Cadence Q1 Earnings Top Estimates

Cadence delivered a strong first quarter of 2026, driven by broad-based demand for its AI-oriented portfolio amid robust design activity. Non-GAAP earnings per share (EPS) of $1.96 beat the Zacks Consensus Estimate by 4.3%, increased 24.8% year over year and topped management’s guided range of $1.89 to $1.95. 

Revenues of $1.474 billion beat the Zacks Consensus Estimate by 1.7% and increased 19% year over year. The figure beat management’s guided range of $1.42-$1.46 billion. 

On the earnings call, the company emphasized its agentic AI strategy, including the launch of AgentStack and new AI Super Agents (ViraStack and InnoStack) that are designed to automate more of the chip design workflow. Cadence expects agentic tools to drive higher EDA consumption and usage across its platform as customers run more simulations, verification and implementation cycles.

A standout metric was a record backlog of $8 billion, driven by strong bookings. Strong backlog and accelerating AI demand led to a raise in its 2026 revenue outlook.

Cadence raised its full-year 2026 revenue outlook to a band of $6.125-$6.225 billion, compared with the earlier guided range of $5.9-$6 billion. The Zacks Consensus Estimate is currently $5.99 billion.

Non-GAAP EPS for 2026 is now expected to be between $7.85 and $7.95, compared with the earlier guided range of $8.05 to $8.15. The Zacks Consensus Estimate is currently pinned at $8.16 per share. 

Cadence noted that the bottom-line performance would primarily be impacted by Hexagon’s Design & Engineering business acquisition, which will add about $160 million to revenues but would be dilutive to the bottom line by nearly 28 cents. The deal was funded using 70% cash and 30% stock. It expects the buyout to be accretive in 2027.

Segment Performance

Product & Maintenance revenues (91.5% of total revenues) of $1.349 billion rose 21.4% year over year. Services revenues (8.5%) of $125 million fell 4.6% year over year. 

Recurring revenues comprised 77% of total revenues, while the remaining were upfront revenues. 

The Americas contributed 45% of revenues, while China accounted for 13%, Other Asia 20%, Europe, Middle East and Africa 16% and Japan 6%, pointing to diversified demand across geographies.

Product-wise, Core EDA, Intellectual Property (“IP”) and Systems Design & Analysis accounted for 71%, 14% and 15% of total revenues, respectively.

The System Design & Analysis business, up 18% in the first quarter, is gaining from higher demand for 3D-IC, Sigrity and Clarity. 

Core EDA business, which includes Custom IC, Digital IC and Functional Verification, experienced 18% year-over-year growth. 

The demand for new hardware systems continued to gain traction, driven by AI/HPC, automotive and robotics. Apart from Palladium and Protium systems, solutions such as Xcelium, Verisium SimAI and ChipStack are being explored by customers, with large evaluations underway, added Cadence. Cerebrus and AI-driven Virtuoso Studio are also seeing strong momentum. 

The IP business was up 22% year over year in the first quarter, benefiting from a broadening silicon solutions portfolio and increasing demand for solutions in AI, HPC and automotive use cases. The company is witnessing higher demand for its Star IP portfolio across interface, memory and foundation IP amid higher complexity of advanced node designs and chiplet-based architectures.

Profitability Numbers

Non-GAAP gross margin contracted 40 basis points (bps) to 88%. 

Total non-GAAP costs and expenses increased 12.6% year over year to $815 million.

However, non-GAAP operating margin expanded 300 bps on a year-over-year basis to 44.7%.

Balance Sheet & Cash Flow

As of March 31, 2026, Cash and cash equivalents were $1.407 billion compared with $3 billion as of Dec. 31, 2025. 

Long-term debt was $2.481 billion as of March 31, 2026, compared with $2.48 billion as of Dec. 31. 

Cadence generated an operating cash flow of $356 million in the reported quarter compared with the prior quarter’s $553 million. Free cash flow was $307 million compared with $512 million in the previous quarter.

The company repurchased its shares worth $200 million in the first quarter.

Outlook

Non-GAAP operating margin for 2026 is now forecasted to be in the band of 43.5% to 44.5%, compared with 44.75% to 45.75% range guided earlier. 

Also, operating cash flow is expected to be in the range of $1.875 billion to $1.975 billion compared with $2 billion projected earlier. The company expects to utilize at least 50% of its free cash flow to repurchase shares in 2026.

For the second quarter of 2026, revenues are estimated to be $1.555-$1.595 billion. The company reported sales of $1.275 billion in the year-ago quarter. 

Non-GAAP EPS is anticipated to be between $2.02 and $2.08. The company reported an EPS of $1.65 in the year-ago quarter. 

Non-GAAP operating margin is estimated to be between 44.5% and 45.5% in the second quarter.

How Have Estimates Been Moving Since Then?

Since the earnings release, investors have witnessed a upward trend in estimates revision.

The consensus estimate has shifted 12.89% due to these changes.

VGM Scores

At this time, Cadence has a average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. Following the exact same course, the stock has a grade of F on the value side, putting it in the lowest quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Interestingly, Cadence has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

Cadence belongs to the Zacks Computer - Software industry. Another stock from the same industry, SAP (SAP Quick QuoteSAP - Free Report) , has gained 1% over the past month. More than a month has passed since the company reported results for the quarter ended March 2026.

SAP reported revenues of $11.18 billion in the last reported quarter, representing a year-over-year change of +17.9%. EPS of $2.01 for the same period compares with $1.51 a year ago.

For the current quarter, SAP is expected to post earnings of $2.06 per share, indicating a change of +21.2% from the year-ago quarter. The Zacks Consensus Estimate has changed -0.8% over the last 30 days.

SAP has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of C.