CDNS Q2 2025: 20% Revenue Growth, Raises 2025 Outlook to 13%
- Strong financial performance and raised guidance: Cadence delivered 20% revenue growth in Q2 2025 with robust bookings and a record backlog, and subsequently raised its annual outlook to 13% revenue growth and 16% EPS growth for 2025.
- Robust AI-driven portfolio: The company is leveraging a broad range of AI-enabled products—such as Cerberus AI Studio and new AI supercomputers—to boost productivity and enhance chip design, positioning itself to benefit from the accelerating AI super cycle.
- Resolution of regulatory concerns and diversified growth drivers: With the settlement of DOJ and BIS investigations eliminating regulatory uncertainty, Cadence is now able to refocus on its diversified offerings across EDA, hardware, and IP, supporting long-term growth and stability.
- China Exposure & Regulatory Risks: Q2 saw a decline in China’s revenue share (from 11% to 9%) and paused bookings due to export restrictions, highlighting continued regulatory and geopolitical uncertainty.
- Weakened Recurring Revenue Mix: The recurring revenue percentage dipped to 78% this quarter—partly due to a shift toward upfront revenue from hardware and IP—raising concerns over the long-term stability of its revenue model.
- Uncertainty Around Agentic AI Adoption: While agentic AI solutions are promising, questions remain over operational challenges and customer integration, potentially delaying realization of expected productivity and revenue benefits.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | +20% (from $1,060.7 million in Q2 2024 to $1,275 million in Q2 2025) | **The 20% growth reflects a continuation of strong customer demand for Cadence’s innovative technology, building on previous trends where increased investments in product and maintenance offerings as well as services drove growth. This improvement is consistent with earlier periods that showed robust revenue from software, hardware, and IP products. ** |
EMEA Revenue | +34% (from $152.5 million in Q2 2024 to $204 million in Q2 2025) | **A significant increase driven by higher demand for software products along with improved contributions from hardware and IP offerings. This mirrors earlier trends where EMEA's revenue growth was bolstered by strong design activity and the strategic shift towards recurring revenue streams. ** |
Japan Revenue | +40% (from $63.6 million in Q2 2024 to $89.25 million in Q2 2025) | **The impressive 40% jump is attributable to strengthened sales in software offerings and increased hardware/IP product contributions. This builds on prior gains seen in Q1 where Japan experienced a healthy increase, suggesting that evolving customer needs and targeted investments continue to drive improvement. ** |
Other Asia Revenue | +22% (from $197.9 million in Q2 2024 to $242.25 million in Q2 2025) | **This growth is driven by robust demand for Cadence's software and a diversified product mix, continuing the trend observed in earlier quarters with increased design activity. Customers in this region are increasingly investing in complex designs, supporting the overall uplift in revenue. ** |
China Revenue | -10% (from $127.8 million in Q2 2024 to $114.75 million in Q2 2025) | **Unlike other regions, China experienced a 10% decline, likely due to a persistent shift away from upfront hardware revenue and lingering macroeconomic and geopolitical headwinds. Previous periods had shown volatility in hardware installations, and this negative momentum continued into Q2 2025. ** |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Revenue | FY 2025 | $5.15B to $5.23B | $5,210,000,000 to $5,270,000,000 | raised |
GAAP Operating Margin | FY 2025 | 30.25% to 31.25% | 28.5% to 29.5% | lowered |
Non-GAAP Operating Margin | FY 2025 | 43.25% to 44.25% | 43.5% to 44.5% | raised |
GAAP EPS | FY 2025 | $4.21 to $4.31 | $3.97 to $4.07 | lowered |
Non-GAAP EPS | FY 2025 | $6.73 to $6.83 | $6.85 to $6.95 | raised |
Operating Cash Flow | FY 2025 | $1.6B to $1.7B | $1,650,000,000 to $1,750,000,000 | raised |
Share Repurchase | FY 2025 | At least 50% of annual free cash flow will be used to repurchase Cadence shares | At least 50% of annual free cash flow will be used to repurchase Cadence shares | no change |
Revenue | Q3 2025 | no prior guidance | $1,305,000,000 to $1,335,000,000 | no prior guidance |
GAAP Operating Margin | Q3 2025 | no prior guidance | 32% to 33% | no prior guidance |
Non-GAAP Operating Margin | Q3 2025 | no prior guidance | 45% to 46% | no prior guidance |
GAAP EPS | Q3 2025 | no prior guidance | $1.14 to $1.20 | no prior guidance |
Non-GAAP EPS | Q3 2025 | no prior guidance | $1.75 to $1.81 | no prior guidance |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Revenue | Q2 2025 | $1.25B to $1.27B | $1,275 million | Beat |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Financial Performance & Raised Guidance | Q1 2025 highlighted strong revenue growth, robust EPS increases, and upward revisions to full‐year guidance. In Q4 2024, guidance was raised with solid revenue and margin targets. | Q2 2025 reported exceptional Q2 financial results with 20% revenue growth, 29% non‐GAAP EPS growth, and raised guidance for 2025. | Consistent positive performance; raised guidance remains a focal point with sustained strength. |
AI-Driven Portfolio & Agentic AI Adoption | Q1 2025 discussed expansion of the AI-driven portfolio and agentic AI integration with new models and partnerships. In Q4 2024, products like Cadence Cerebrus, SimAI, and generative AI initiatives were emphasized. | Q2 2025 further emphasized the strategic importance of their AI-driven portfolio, launching new agentic AI platforms and achieving significant customer adoption. | Increasing emphasis and broader strategic deployment of agentic AI, building on prior momentum. |
Regulatory & Geopolitical Risks | Q1 2025 noted a cautious stance with flat China performance and reliance on stable export control regulations. Q4 2024 addressed flat revenue assumptions for China and export restriction challenges. | Q2 2025 detailed export restrictions causing a pause in ratable revenue from China, a slight revenue adjustment, and a settlement with DOJ/BIS, while remaining cautiously optimistic. | Cautious outlook persists with ongoing concerns regarding China exposure and regulatory uncertainties across periods. |
Recurring Revenue Mix Dynamics | Q1 2025 highlighted a strong recurring revenue model that drove resilience and forecast improvements. Q4 2024 estimated the mix at 80/20 despite headwinds from China. | Q2 2025 saw the recurring revenue percentage dip to 78% due to higher upfront revenue from hardware demand and China restrictions, with long‐term expectations of an 80/20 mix. | A slight dip in current recurring revenue percentage, though the long-term model remains stable. |
Diversified Product Portfolio Shift | Q1 2025 emphasized a diversified portfolio with strong hardware, system design, and AI-driven solutions. Q4 2024 showcased balanced growth across hardware, IP, and simulation tools. | In Q2 2025 the focus was on the strength of the AI-driven portfolio and hardware success, with no explicit mention of a shift away from traditional hardware platforms. | A subtle pivot with more emphasis on AI-driven offerings while traditional hardware remains strong; explicit decline is not reiterated in Q2. |
Hardware Demand & Capacity Constraints | Q1 2025 discussed robust hardware demand outstripping production capacity, supported by diversified manufacturing lines. Q4 2024 noted phenomenal demand with record customer wins and a strong pipeline. | Q2 2025 reiterated strong hardware demand, noting capacity constraints that contributed to a lower recurring revenue percentage. | Consistently strong demand persists, although capacity constraints remain a limiting factor. |
Pending IP Acquisition and Integration Risk | Q1 2025 mentioned the pending acquisition of Arm's Artisan Foundation IP business as strategically important. Q4 2024 discussed the definitive agreement to acquire Secure-IC to bolster IP offerings. | No mention in Q2 2025. | This topic is not updated in the current period, suggesting a pause or resolution in discussion. |
Emerging Advanced Technologies | Q1 2025 focused on digital twins for data centers and opportunities in 3D-IC with automation in packaging and PCB design. Q4 2024 highlighted developments in 3D-IC, chiplet design, and advanced simulation platforms. | Q2 2025 emphasized progress in digital twins driving data center optimization and noted strong customer uptake of 3D-IC technologies with improved design flows. | Growing emphasis on emerging advanced technologies with deepening customer adoption and product innovation. |
Core EDA Business Growth Challenges | Q4 2024 highlighted challenges such as a decline in China revenue, a transition year in hardware, and a deceleration to high single-digit growth. Q1 2025 instead presented strong double-digit growth and AI-driven wins. | Q2 2025 presented a positive narrative with a 16% year-over-year growth in Core EDA and notable customer wins, with no mention of earlier challenges. | Challenges noted in Q4 2024 appear to have eased by Q1/Q2 2025, with current sentiment being strongly positive. |
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Growth Outlook
Q: Why raise outlook missing one China month?
A: Management highlighted robust global bookings and a strong backlog that enabled them to raise the full‑year guidance to 13% revenue and 16% EPS growth, despite a month without recognizing China revenue. -
China Impact
Q: What is the near and long‑term China effect?
A: China accounted for 9% of revenue in Q2 (down from 11%) with expectations now of modest growth rather than flat figures, as stronger demand elsewhere offsets challenges. -
Backlog/RPO Impact
Q: How did restrictions affect backlog/RPO?
A: Due to China restrictions, some bookings were paused affecting Q2 backlog, but management expects a record backlog later with a book‑to‑bill ratio above one. -
Core EDA Drivers
Q: What drove core EDA strength this quarter?
A: A comprehensive portfolio combined with strong customer wins and increased demand for AI‑enabled tools underpinned robust core EDA performance. -
Recurring Revenue
Q: What recurring revenue percentage is expected?
A: Although recurring revenue dipped to 78% in Q2 because of China holds, the normalized expectation is about an 80/20 split between recurring and upfront revenue. -
Tax Benefit Impact
Q: How are tax benefits influencing R&D plans?
A: The immediate tax benefit of approximately $140M improves cash flow without changing their ongoing commitment to strong R&D investment. -
IP Growth
Q: Is higher IP growth sustainable?
A: Management is optimistic that accelerated IP growth is sustainable, driven by increased investments and opportunities with advanced node foundries, outpacing overall growth. -
Recurring Growth Trajectory
Q: What is the long‑term recurring revenue trend?
A: Despite a temporary shift toward upfront revenue from hardware and IP, the strength of core EDA software supports a steady 80/20 recurring revenue split going forward. -
Agentic AI Monetization
Q: How will agentic AI generate new revenue?
A: New agentic AI workflows offer significant productivity improvements and are being monetized through enhanced value over existing base tools, introducing a fresh revenue stream. -
Physical AI Impact
Q: Does physical AI boost tool bookings?
A: The increased focus on physical AI addresses more complex design needs, thereby catalyzing broader demand for advanced tools as customers adapt to new silicon requirements. -
China Counterfactual
Q: What if restrictions hadn’t occurred in China?
A: Although it’s hard to determine a precise impact, management acknowledged that without the temporary restrictions, China’s revenue contribution would likely have been even stronger. -
Agentic AI Barriers
Q: What are the main barriers for agentic AI adoption?
A: The toughest challenges lie in integrating new workflows into existing design processes, though exponential workload growth makes increased automation essential. -
System Design Growth
Q: What drives strong system design organic growth?
A: Robust growth in system design analysis is driven by disruptive innovations, including Millennium’s capabilities and an integrated suite of tools delivering improved PPA performance in complex packaging trends.
Research analysts covering CADENCE DESIGN SYSTEMS.