We use cookies to understand how you use our site and to improve your experience.
This includes personalizing content and advertising.
By pressing "Accept All" or closing out of this banner, you consent to the use of all cookies and similar technologies and the sharing of information they collect with third parties.
You can reject marketing cookies by pressing "Deny Optional," but we still use essential, performance, and functional cookies.
In addition, whether you "Accept All," Deny Optional," click the X or otherwise continue to use the site, you accept our Privacy Policy and Terms of Service, revised from time to time.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Cadence Q3 Earnings Beat Estimates on AI Demand, Outlook Raised
Read MoreHide Full Article
Key Takeaways
CDNS Q3 EPS of $2.11 beat estimates by 3.4%, while revenues jumped 22% year over year to $1.633 billion.
Cadence's AI-driven demand lifted core EDA revenues 20%, semiconductor IP 24% and System Design 30%.
CDNS raised its 2026 revenue outlook to $6.387-$6.417 billion and EPS guidance to $8.37-$8.43.
Cadence Design Systems, Inc. (CDNS - Free Report) delivered strong third-quarter 2026 results, driven by robust demand for AI-oriented design solutions and hardware-assisted verification products. Non-GAAP earnings per share (EPS) of $2.11 beat the Zacks Consensus Estimate by 3.4% and increased 9.3% year over year.
Revenues of $1.633 billion surpassed the consensus mark by 1.4% and increased 22% year over year. The figure exceeded management’s guided range of $1.595-$1.625 billion. Record backlog of $8.2 billion, strong recurring revenue growth and accelerating AI adoption prompted Cadence to raise its 2026 revenue and earnings outlook.
Cadence Design Systems, Inc. Price, Consensus and EPS Surprise
Cadence reported 20% year-over-year revenue growth in core electronic design automation (“EDA”), 24% in semiconductor intellectual property (“IP”) and 30% in System Design and Analysis. Recurring revenues increased 18% year over year, reflecting sustained demand for software solutions and expanding customer engagements.
The company introduced Maestro, a portfolio of domain-specialized AI models designed for chip and system development. Cadence highlighted that the initial results demonstrated up to 30% higher quality and fivefold improvement in token efficiency compared with general-purpose foundation models. CDNS' AI Super Agents recorded more than 100 active customer engagements, highlighting growing adoption of AI-driven design workflows.
Product and Maintenance revenues (91% of total revenues) increased 23.2% year over year to $1.487 billion. Services revenues (9%) rose 11.3% to $146 million.
Recurring revenues accounted for 79% of quarterly revenues, while upfront revenues contributed the remaining 21%. Core EDA represented 69% of revenues, Semiconductor IP contributed 15%, and System Design and Analysis accounted for 16%.
Geographically, the Americas contributed 43% of revenues, followed by China at 16%, Other Asia at 19%, Europe, Middle East and Africa at 15%, and Japan at 7%.
CDNS Sees Strong Momentum Across Product Portfolio
Core EDA benefited from broad-based demand for digital design, verification and sign-off solutions. Cadence secured 16 new full-flow wins during the quarter. Its Palladium and Protium hardware platforms delivered another strong quarter, supported by increasing verification requirements for AI and high-performance computing designs.
The IP business benefited from growing investments in custom silicon, advanced-node technologies and chiplet-based architectures. Tensilica delivered record quarterly revenues, while demand for the company's STAR IP portfolio remained strong.
System Design and Analysis growth reflected increasing adoption of integrated PCB design, multiphysics analysis and accelerated simulation solutions. Cadence secured customer engagements involving its Millennium and Reality Digital Twin platforms, including a deployment supporting next-generation AI infrastructure.
Cadence's Profitability
Non-GAAP gross margin expanded 80 basis points year over year to 88.8%. However, total non-GAAP costs and expenses increased to $913 million from $701 million in the year-ago quarter.
Non-GAAP operating margin contracted 350 basis points year over year to 44.1%.
Management noted that the integration of Hexagon's Design & Engineering business weighed on incremental margins in 2026. However, Cadence expects the acquired business to contribute more favorably to profitability in 2027 as integration efforts progress.
CDNS Maintains Solid Cash Generation and Buybacks
Cadence ended the quarter with cash and cash equivalents of $1.452 billion, compared with $1.440 billion at the end of the preceding quarter. Debt principal stood at $2.650 billion, while days sales outstanding increased to 66 from 65 sequentially.
Operating cash flow totaled $424 million, down from $635 million in the previous quarter. Free cash flow was $362 million compared with $582 million sequentially.
The company repurchased shares worth $400 million during the quarter. Its board authorized an additional $2.5 billion for share repurchases, reinforcing management's commitment to shareholder returns.
Cadence Raises 2026 Outlook, Issues Q4 Guidance
Cadence raised its full-year 2026 revenue outlook to $6.387-$6.417 billion from the previous range of $6.260-$6.340 billion.
Non-GAAP EPS is now projected between $8.37 and $8.43, up from the earlier guidance of $8.05-$8.15. Non-GAAP operating margin is expected between 44.2% and 45.2%, while operating cash flow is projected at approximately $2 billion.
For the fourth quarter, revenues are anticipated between $1.695 billion and $1.725 billion. Non-GAAP EPS is expected between $2.19 and $2.25, compared with $1.99 in the year-ago quarter.
Non-GAAP operating margin is projected between 44% and 45%. Cadence expects to repurchase approximately $400 million of shares during the fourth quarter and utilize more than 50% of its 2026 free cash flow for buybacks.
Recent Performance of Other Companies in the Same Space
Progress Software Corporation (PRGS - Free Report) reported third-quarter fiscal 2026 results wherein revenues came in at $246 million, down 2% year over year and on a constant currency (cc) basis. ARR of $873 million inched up 1% year over year on a cc basis. Progress Software Corporationreported a 13% year-over-year increase in non-GAAP earnings per share, which stood at $1.69.
Shares of Progress Software Corporation have inched up 1.3% in the past year.
Synopsys, Inc (SNPS - Free Report) reported third-quarter fiscal 2026 non-GAAP earnings of $3.91 per share, which increased 15.3% year over year and beat the Zacks Consensus Estimate by 6.5%. Broad-based strength, led by EDA and Ansys, supported the earnings outperformance. Revenues for Synopsys rose 42.4% year over year to $2.48 billion, topping the consensus mark by 1.7%. Backlog remained strong at $10.9 billion, while Design IP returned to year-over-year growth.
Shares of Synopsys have lost 2.3% in the past year.
Oracle (ORCL - Free Report) reported first-quarter fiscal 2027 non-GAAP earnings of $1.92 per share, which beat the Zacks Consensus Estimate by 10.3% and increased 30% in dollar terms and 30% in cc on a year-over-year basis.
Total quarterly revenues increased 30% year over year to $19.3 billion, which beat the consensus mark by 1.11%, reflecting strong demand for Oracle's cloud infrastructure and applications suites, particularly from AI-focused enterprises.
Shares of Oracle have lost 55.2% in the past year.
View the Zacks #1 Rank List
Image: Bigstock
Cadence Q3 Earnings Beat Estimates on AI Demand, Outlook Raised
Key Takeaways
Cadence Design Systems, Inc. (CDNS - Free Report) delivered strong third-quarter 2026 results, driven by robust demand for AI-oriented design solutions and hardware-assisted verification products. Non-GAAP earnings per share (EPS) of $2.11 beat the Zacks Consensus Estimate by 3.4% and increased 9.3% year over year.
Revenues of $1.633 billion surpassed the consensus mark by 1.4% and increased 22% year over year. The figure exceeded management’s guided range of $1.595-$1.625 billion. Record backlog of $8.2 billion, strong recurring revenue growth and accelerating AI adoption prompted Cadence to raise its 2026 revenue and earnings outlook.
Cadence Design Systems, Inc. Price, Consensus and EPS Surprise
Cadence Design Systems, Inc. price-consensus-eps-surprise-chart | Cadence Design Systems, Inc. Quote
CDNS Benefits From Broad-Based AI Demand
Cadence reported 20% year-over-year revenue growth in core electronic design automation (“EDA”), 24% in semiconductor intellectual property (“IP”) and 30% in System Design and Analysis. Recurring revenues increased 18% year over year, reflecting sustained demand for software solutions and expanding customer engagements.
The company introduced Maestro, a portfolio of domain-specialized AI models designed for chip and system development. Cadence highlighted that the initial results demonstrated up to 30% higher quality and fivefold improvement in token efficiency compared with general-purpose foundation models. CDNS' AI Super Agents recorded more than 100 active customer engagements, highlighting growing adoption of AI-driven design workflows.
Cadence's Revenue Mix Reflects Widespread Strength
Product and Maintenance revenues (91% of total revenues) increased 23.2% year over year to $1.487 billion. Services revenues (9%) rose 11.3% to $146 million.
Recurring revenues accounted for 79% of quarterly revenues, while upfront revenues contributed the remaining 21%. Core EDA represented 69% of revenues, Semiconductor IP contributed 15%, and System Design and Analysis accounted for 16%.
Geographically, the Americas contributed 43% of revenues, followed by China at 16%, Other Asia at 19%, Europe, Middle East and Africa at 15%, and Japan at 7%.
CDNS Sees Strong Momentum Across Product Portfolio
Core EDA benefited from broad-based demand for digital design, verification and sign-off solutions. Cadence secured 16 new full-flow wins during the quarter. Its Palladium and Protium hardware platforms delivered another strong quarter, supported by increasing verification requirements for AI and high-performance computing designs.
The IP business benefited from growing investments in custom silicon, advanced-node technologies and chiplet-based architectures. Tensilica delivered record quarterly revenues, while demand for the company's STAR IP portfolio remained strong.
System Design and Analysis growth reflected increasing adoption of integrated PCB design, multiphysics analysis and accelerated simulation solutions. Cadence secured customer engagements involving its Millennium and Reality Digital Twin platforms, including a deployment supporting next-generation AI infrastructure.
Cadence's Profitability
Non-GAAP gross margin expanded 80 basis points year over year to 88.8%. However, total non-GAAP costs and expenses increased to $913 million from $701 million in the year-ago quarter.
Non-GAAP operating margin contracted 350 basis points year over year to 44.1%.
Management noted that the integration of Hexagon's Design & Engineering business weighed on incremental margins in 2026. However, Cadence expects the acquired business to contribute more favorably to profitability in 2027 as integration efforts progress.
CDNS Maintains Solid Cash Generation and Buybacks
Cadence ended the quarter with cash and cash equivalents of $1.452 billion, compared with $1.440 billion at the end of the preceding quarter. Debt principal stood at $2.650 billion, while days sales outstanding increased to 66 from 65 sequentially.
Operating cash flow totaled $424 million, down from $635 million in the previous quarter. Free cash flow was $362 million compared with $582 million sequentially.
The company repurchased shares worth $400 million during the quarter. Its board authorized an additional $2.5 billion for share repurchases, reinforcing management's commitment to shareholder returns.
Cadence Raises 2026 Outlook, Issues Q4 Guidance
Cadence raised its full-year 2026 revenue outlook to $6.387-$6.417 billion from the previous range of $6.260-$6.340 billion.
Non-GAAP EPS is now projected between $8.37 and $8.43, up from the earlier guidance of $8.05-$8.15. Non-GAAP operating margin is expected between 44.2% and 45.2%, while operating cash flow is projected at approximately $2 billion.
For the fourth quarter, revenues are anticipated between $1.695 billion and $1.725 billion. Non-GAAP EPS is expected between $2.19 and $2.25, compared with $1.99 in the year-ago quarter.
Non-GAAP operating margin is projected between 44% and 45%. Cadence expects to repurchase approximately $400 million of shares during the fourth quarter and utilize more than 50% of its 2026 free cash flow for buybacks.
Zacks Rank
Cadence currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Recent Performance of Other Companies in the Same Space
Progress Software Corporation (PRGS - Free Report) reported third-quarter fiscal 2026 results wherein revenues came in at $246 million, down 2% year over year and on a constant currency (cc) basis. ARR of $873 million inched up 1% year over year on a cc basis. Progress Software Corporation reported a 13% year-over-year increase in non-GAAP earnings per share, which stood at $1.69.
Shares of Progress Software Corporation have inched up 1.3% in the past year.
Synopsys, Inc (SNPS - Free Report) reported third-quarter fiscal 2026 non-GAAP earnings of $3.91 per share, which increased 15.3% year over year and beat the Zacks Consensus Estimate by 6.5%. Broad-based strength, led by EDA and Ansys, supported the earnings outperformance.
Revenues for Synopsys rose 42.4% year over year to $2.48 billion, topping the consensus mark by 1.7%. Backlog remained strong at $10.9 billion, while Design IP returned to year-over-year growth.
Shares of Synopsys have lost 2.3% in the past year.
Oracle (ORCL - Free Report) reported first-quarter fiscal 2027 non-GAAP earnings of $1.92 per share, which beat the Zacks Consensus Estimate by 10.3% and increased 30% in dollar terms and 30% in cc on a year-over-year basis.
Total quarterly revenues increased 30% year over year to $19.3 billion, which beat the consensus mark by 1.11%, reflecting strong demand for Oracle's cloud infrastructure and applications suites, particularly from AI-focused enterprises.
Shares of Oracle have lost 55.2% in the past year.