Tech morning briefing: AI financing eases compute concerns, while cash flow and recurring revenue come under pressure behind earnings growth

Why are semiconductors leading gains again?

Semiconductors rose 1.4%, Asian memory stocks gained 4% to 6%, and emerging cloud providers rose more than 3% in early trading; software stocks fell 0.4%. Investors believed an improved reception to Anthropic’s listing application, together with financing news involving Meta, Broadcom and others, eased some concerns about AI labs’ revenue and funding.
A special-purpose company plans to use 63 billion dollars in financing to buy Broadcom AI accelerators and networking equipment and lease them to Anthropic, with delivery planned for 2027. Wolfe believes this covers most of Anthropic’s purchases from Broadcom that year and helps make existing revenue guidance more achievable.
The financing also comes at a cost: Broadcom is providing a residual-value backstop for approximately 72.5% of the new financing, with maximum exposure of about 45 billion dollars on the new deal, in addition to approximately 29 billion dollars from an earlier transaction; the exposure will amortize gradually over five years. Wolfe believes a future excess of compute capacity could depress equipment residual values.

Cadence’s third-quarter revenue was 1.633 billion dollars, up 22% year over year and above market expectations of 1.614 billion dollars; the midpoint of its fourth-quarter revenue guidance was 1.71 billion dollars, about 4% above expectations. The company raised its fiscal 2026 revenue guidance for the third time, taking the midpoint to 6.4 billion dollars, up about 21% year over year.
The sources of growth affect the assessment: quarterly recurring revenue grew 18% year over year, down from approximately 24% reported in the second quarter; on a comparable basis assuming a similar contribution from Hexagon, organic growth was around 15%. The upside came mainly from one-time revenue recognition, with record hardware revenue and IP revenue growth of 24%.
Full-year guidance has risen by approximately 450 million dollars from its initial level, with about 80% coming from Hexagon and the China business; excluding both, growth was approximately 14%. Backlog rose 17% year over year to 8.2 billion dollars, but increased only about 100 million dollars sequentially; near-term remaining performance obligations were flat sequentially, and third-quarter orders fell year over year.
Profit and cash flow were also under pressure: the non-GAAP operating margin was 44.1%, down 350 basis points year over year, partly because of a shift in the timing of annual charitable donations; operating cash flow was affected by receivables and inventory and was about 25% below market expectations.

Management said customers are not yet paying meaningful fees for agents; monetization currently comes mainly from agents increasing usage of underlying design tools, which in turn drives additional license purchases. There are now more than 100 active super-agent projects.
The newly launched Maestro combines models trained on Cadence tools and data with a router and plans to charge model usage fees on top of EDA and agent licenses. Management believes its advantage comes from deep integration with design tools, and customers can bear the models’ compute costs themselves.
Bulls value the additional demand for underlying tools from more design iterations; bears worry that frontier models or customers’ own agents could control the design interface, or even reduce the number of licenses needed by improving engineer productivity. Maestro itself also brings model training and router operating costs.

Celestica’s third-quarter revenue was 5.83 billion dollars, up 83% year over year and above market expectations of approximately 5.45 billion dollars. The company issued its first fiscal 2027 guidance: revenue of 40 billion dollars, up 90% year over year, and earnings per share of 21.50 dollars, both above market expectations; however, the report said buy-side expectations for full-year earnings per share were close to 25 dollars.
Revenue from Celestica’s largest customer rose about 35% sequentially, easing concerns about TPU project delays and share losses. However, adjusted gross margin fell to 11.2%, below management’s previous expectations; the company cut its fiscal 2026 free cash flow guidance from 600 million dollars to 460 million dollars to support working capital in 2027, while forecasting capital expenditure of 1.5 billion to 2 billion dollars in 2027.
Corning’s third-quarter optical business revenue was 2.38 billion dollars, up 44% year over year and above market expectations of approximately 2.25 billion dollars; the optical business’s revenue beat exceeded the company’s overall beat, meaning other businesses combined fell short of expectations. The glass innovation business declined 3% year over year, and the solar business remained loss-making and ramped up more slowly than planned.

PayPal’s third-quarter non-GAAP earnings per share were 1.45 dollars, above market expectations of 1.32 dollars; revenue, however, was 8.58 billion dollars, below expectations of 8.71 billion dollars. Full-year earnings-per-share guidance was raised from approximately 5.38 dollars to approximately 5.60 dollars.
The earnings improvement came more from cost and credit factors: transaction and credit losses fell approximately 97 million dollars year over year, exceeding the 79 million-dollar increase in transaction margin dollars; the former included a release of reserves from selling more receivables.
On a currency-adjusted basis, branded checkout total payment volume rose 1% year over year, below 2% in the second quarter and 5% a year earlier; fourth-quarter transaction margin dollar guidance called for slight growth, below the 2% increase in the third quarter, even with a lower comparison base a year earlier.