Cadence Design Systems Inc. (NASDAQ:CDNS) is having a good Tuesday. The chip design software company reported third-quarter results that sailed past Wall Street's expectations and then raised its full-year guidance, sending shares up in premarket trading.

The numbers were solid across the board. Cadence brought in $1.63 billion in revenue for the quarter, beating analysts' $1.61 billion estimate. Adjusted earnings per share came in at $2.11, also ahead of the $2.04 consensus. Revenue grew 22% compared to the same period last year, and the company's backlog hit a record $8.2 billion.

Recurring revenue rose 18%, core electronic design automation revenue increased 20%, intellectual property revenue grew 24%, and system design and analysis revenue climbed 30%. Cadence ended the quarter with $1.45 billion in cash and $2.65 billion in outstanding debt principal. Operating cash flow totaled $424 million, and the company repurchased $400 million in shares during the quarter.

Speaking of buybacks, the board authorized an additional $2.5 billion in share repurchases. Cadence expects to allocate more than 50% of its 2026 free cash flow to buybacks, which is a pretty clear signal about how management views the stock.

The AI Angle Is Real

Cadence isn't just talking about AI as a buzzword. The company reported more than 100 active customer engagements involving its artificial intelligence super agents during the quarter. That's a meaningful number for a company whose software helps design the chips that power everything from smartphones to data centers.

The results are tangible. Cadence said its ChipStack RTL-generation agent achieved an average 24% reduction in chip area and an 18% reduction in power consumption compared with code generated solely by foundation models. That's the kind of efficiency gain that gets chip designers' attention.

MediaTek reported a 50% to 70% improvement in verification coverage and a 1.4x to 2x reduction in engineering effort. ViraStack customer engagements increased fourfold. Renesas achieved a 34-fold productivity improvement using InnoStack. Socionext expects productivity gains of up to fivefold, and Nokia Corporation (NYSE:NOK) reported a fivefold acceleration in key workflows using AuraStack.

Cadence also secured 16 new full-flow electronic design automation wins. Its Palladium and Protium verification platforms posted another record quarter, while Tensilica generated record revenue. Spectre FX secured a major competitive displacement, alongside multiple projects involving 2-nanometer technology.

Customer adoption expanded across several industries. Allegro secured business with a leading electric vehicle customer, while Switch selected Cadence's Millennium and Reality Digital Twin solutions for AI factory design. Honda is using Cadence's RTL-generation agent, and Samsung Electronics Co., Ltd. (OTC:SSNLF) foundry adopted InnoStack to improve engineering efficiency and accelerate power, performance and area exploration.

Separately, Cadence introduced Maestro, a portfolio of domain-specialized AI models for chip and system design. The company said initial workflow results demonstrated up to 30% higher quality and up to five times greater token efficiency compared with general-purpose foundation models.

Guidance Gets a Lift

For the full year 2026, Cadence now expects revenue of $6.39 billion to $6.42 billion, up from its previous outlook of $6.26 billion to $6.34 billion. The revised forecast exceeds analysts' consensus estimate of $6.32 billion.

The company also increased its adjusted earnings per share forecast to $8.37 to $8.43, compared with its earlier projection of $8.05 to $8.15. Analysts had expected $8.16 per share. Cadence expects approximately $2 billion in operating cash flow for the full year.

For the fourth quarter, the company projected revenue of $1.695 billion to $1.725 billion, above analysts' consensus estimate of $1.649 billion. Adjusted earnings per share are expected to range from $2.19 to $2.25, compared with analysts' expectations of $2.03.

CDNS Price Action: Cadence Design Systems shares were up 3.05% at $331.99 during premarket trading on Tuesday, according to market data.