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# Cadence: Priced for the Supercycle — Q3 2026 Earnings Preview
- URL: https://www.altamiraequity.com/cdns-2026-10-26/
- Published: 2026-10-26T15:00:00.000Z
- Updated: 2026-11-10T07:37:06.000Z
- Description: The setup in one line: Cadence raised full-year guidance to 19% revenue growth in July on a record $8.1B backlog — and tonight's consensus ($2.05 EPS on $1,613M) sits almost exactly on the midpoint of the guidance Cadence itself gave for this quarter.
- Author: Altamira Capital
- Tags: Research, CDNS, Earnings

**Corrected Oct 26, 2026:** the first issue of this edition incorrectly flagged Morningstar's fair value as unavailable. It has since been verified on the signed-in Morningstar quote page — Fair Value $350.00 (Jul 28, 2026), 3 stars, Price/Fair Value 0.90 — and the Quality Scorecard has been re-run with it (Total 44.9). This corrected issue supersedes the first.

**The setup in one line:** Cadence raised full-year guidance to 19% revenue growth in July on a record $8.1B backlog — and tonight's consensus ($2.05 EPS on $1,613M) sits almost exactly on the midpoint of the guidance Cadence itself gave for this quarter. There is no cushion in the number; the print has to beat, and guidance has to move, for a stock already priced at \~34× forward earnings.

## At a glance — the print

![Cadence Design Systems, Inc.: eight quarters of EPS and revenue surprises against the next-session reaction](https://www.altamiraequity.com/content/images/2026/11/CDNS-2026-11-10-surprise_history.png)

Cadence Design Systems, Inc.: eight quarters of EPS and revenue surprises against the next-session reaction. Source: FMP earnings and daily closes.

Report Today, AMC Mon Oct 26, 2026 · fiscal Q3, period ending Sep 30, 2026  
Consensus EPS (non-GAAP) $2.05 FMP earnings calendar · Cadence Q3 guide: $2.01–$2.07  
Consensus revenue $1,613M FMP · Cadence Q3 guide: $1,595–$1,625M  
Price (pre-print) $320.96 Scorecard close · −22.9% from 52-week high $416.39

### Last reported quarter — Q2 2026 (reported Jul 27, 2026)

| Metric                                | Actual                                                                                                                      | Estimate  | Surprise |
| ------------------------------------- | --------------------------------------------------------------------------------------------------------------------------- | --------- | -------- |
| Revenue                               | $1,584.5M                                                                                                                   | $1,576.9M | +0.5%    |
| EPS (non-GAAP, FMP calendar)          | $2.11                                                                                                                       | $2.05     | +2.9%    |
| Gross / operating (GAAP) / net margin | 84.9% / 28.4% / 23.2% · Non-GAAP operating margin 45.5% (call)                                                              |           |          |
| Backlog                               | Record $8.1B at Q2 exit (call)                                                                                              |           |          |
| FY26 guidance (raised Jul 27)         | Revenue $6,260–$6,340M (+19% at midpoint) · Non-GAAP EPS $8.05–$8.15 · Operating cash flow \~$2B · \~50% of FCF to buybacks |           |          |

## Q2 2026 Sankey — the last filed quarter

Revenue $1,584.5M · 100.0%  
Cost of revenue $239.3M · 15.1%  
Gross profit $1,345.1M · 84.9%  
R&D $531.3M · 33.5%  
SG&A $329.6M · 20.8%  
Other operating expenses $34.3M · 2.2%  
Operating income $450.0M · 28.4%  
Income tax $143.2M · 9.0%  
Net income $367.1M · 23.2%

Exact filed figures, FMP quarterly income statement, fiscal period ending Jun 30, 2026\. Flow widths are proportional to revenue. Pre-tax income was $510.2M (operating income plus $60.3M net other income); tax $143.2M.

## How Cadence makes money

![Cadence Design Systems, Inc.: how the latest quarter's revenue became operating income and free cash flow](https://www.altamiraequity.com/content/images/2026/11/CDNS-2026-11-10-income_flow.png)

Cadence Design Systems, Inc.: how the latest quarter's revenue became operating income and free cash flow. Source: FMP income and cash-flow statements.

Cadence sells the software (EDA), verification hardware/software, and semiconductor IP that chip and system companies use to design silicon — increasingly wrapped in agentic-AI "Super Agents" that call its physics-based engines more often. Revenue is predominantly recurring software: in FY2025, product & maintenance was $4,821.6M (91.0%) of the $5,296.8M total, with technology services $475.2M (9.0%). By product group (Fiscal.ai, FY2025): Core EDA $3.70B (69.9%), System Design & Analysis $821.4M (15.5%), and IP $775.0M (14.6%). By geography (mutually exclusive split): Americas $2,479.3M (US $2,311.0M), EMEA $790.6M, China $680.0M (12.8% of revenue — remember that share when the export-control language comes up), Japan $341.7M, and Other Asia $1,005.2M. In Q2 2026 every product group grew double digits year over year: Core EDA +18% and IP over +40% (call).

Product & maintenance $4,822M · 91.0%  
Technology services $475M · 9.0%

### By product group — FY2025

Core EDA $3,700M · 69.9%  
System Design & Analysis $821M · 15.5%  
IP $775M · 14.6%

## In charts

The numbers behind this note, drawn from the same filed figures.

![Cadence Design Systems, Inc.: the long view — annual revenue, margins and returns on capital](https://www.altamiraequity.com/content/images/2026/11/CDNS-2026-11-10-long_view.png)

Cadence Design Systems, Inc.: the long view — annual revenue, margins and returns on capital. Source: FMP annual statements.

Sources: FMP revenue product segmentation (FY2025, filed), cross-checked line-by-line against Fiscal.ai Segments & KPIs pulled Oct 26, 2026 — the two agree (product & maintenance $4.82B, services $475.2M on both). Fiscal.ai company snapshot: revenue TTM $5.84B, market cap $88.35B, EV $89.39B, P/E 63× (GAAP basis).

## The setup in charts

### Quarterly revenue — the 19% growth claim, quarter by quarter

![Cadence Design Systems, Inc.: quarterly revenue and year-on-year growth](https://www.altamiraequity.com/content/images/2026/11/CDNS-2026-11-10-revenue_trend.png)

Cadence Design Systems, Inc.: quarterly revenue and year-on-year growth. Source: FMP income statements.

Q3 ’25 $1,339M  
Q4 ’25 $1,440M  
Q1 ’26 $1,474M  
Q2 ’26 $1,584M  
Q3 ’26 consensus $1,613M

Revenue has stepped up every quarter for a year. Q3 consensus of $1,613M is only +1.8% sequentially — the seasonality is in Q4 — so the debate tonight is less the quarter than whether FY guidance rises again.

## What to watch tonight

- **Beat size vs the midpoint.** Consensus ($2.05 / $1,613M) is the guidance midpoint ($2.01–$2.07 / $1,595–$1,625M). A print at consensus is a print at plan — historically not enough for this multiple.
- **FY26 guidance.** Raised in July to $6,260–$6,340M revenue and $8.05–$8.15 non-GAAP EPS. A second raise confirms the supercycle; a hold invites "peak growth" questions.
- **Backlog.** $8.1B was a record at Q2\. Growth in backlog and recurring revenue is the cleanest demand signal Cadence gives.
- **Agentic AI monetisation.** ChipStack had 20+ customer engagements and ViraStack 25+ in Q2\. Do the Super Agents show up as add-on revenue, or stay as engagement counts?
- **China and export controls.** The July outlook explicitly assumed export-control rules stay "substantially similar" for the rest of the year. Any change in that language matters more than any single line item.
- **Margins and buyback.** Q3 non-GAAP operating margin was guided to 43.5–44.5%; Q2 buybacks were $200M against a plan to return \~50% of FCF.

## The Key Issue

**Thesis:** Cadence is the toll road for AI silicon — every hyperscaler chip, every advanced node, every 3D-IC package needs its tools — and agentic AI multiplies tool usage rather than replacing it. The question is not whether the business is superb; it is whether superb is already in the price.

### Evidence for

- Guidance was **raised** in July to 19% revenue growth with higher profitability — management is leaning into demand, not managing it down.
- Record backlog of $8.1B and broad-based double-digit growth across all product groups (Core EDA +18%, IP +40%+ YoY in Q2).
- Agentic AI is a usage accelerator: autonomous agents expand the design-exploration space and call Cadence's engines more often — a structural TAM tailwind described on the Q2 call.
- Cash quality is elite: Q2 operating cash flow $635M, free cash flow $582M, gross margin \~86% on the scorecard's latest-FY basis.

### Evidence against

- Valuation: P/E NTM \~34.5× (scorecard score 22.0) and an FCF yield of 1.9% leave thin room for disappointment; even Morningstar's $350 fair value implies only \~9–11% headroom from here — supportive, not a bargain signal.
- Consensus equals the guidance midpoint — the "beat" the stock needs is not in the published number.
- The outlook carries an explicit export-control assumption, and China was $680.0M — 12.8% of FY2025 revenue (Fiscal.ai/FMP segmentation). That exposure is a policy variable, not a market one.
- The stock is already −22.9% from its 52-week high and below its 200-day average — the market has been quietly de-rating the name into the print.

### What to watch

FY guidance direction, backlog growth, and whether IP can sustain anything near Q2's +40% pace. One quarter of merely meeting plan, at this multiple, would likely extend the de-rating; a raise would re-arm the supercycle story.

Research for information only — not investment advice; see [Disclosures](https://www.altamiraequity.com/disclosures/).