Autodesk (ADSK) Q2 2026 earnings review
Autodesk Beats & Raises on AECO Strength, Sets Ambitious 41% Margin Target for FY29
Autodesk delivered a strong Q2, with revenue growth accelerating to 17% YoY, beating guidance. The performance was driven by exceptional strength in the Architecture, Engineering, Construction, and Operations (AECO) segment, which grew 23%. Consequently, the company raised its full-year guidance for revenue, EPS, and free cash flow. The key highlight was the introduction of a new long-term target: achieving a 41% non-GAAP operating margin by fiscal 2029, signaling a clear focus on profitability. The quarter was further de-risked by the closure of SEC and USAO investigations related to the company's accounting practices, removing a significant overhang.
🐂 Bull Case
The AECO segment's 23% growth is fueled by sustained investment in data centers, infrastructure, and industrial buildings, indicating a durable, secular tailwind that is more than offsetting softness in commercial construction.
The new FY29 non-GAAP operating margin target of 41% (up from ~37% guided for FY26) provides a clear, multi-year framework for margin expansion driven by sales and marketing optimization.
The closure of investigations by the SEC and USAO into the company's accounting practices removes a major source of uncertainty and a distraction for management, allowing full focus on execution.
🐻 Bear Case
The Media and Entertainment segment continues to struggle, growing just 4% YoY. This significant underperformance versus the rest of the portfolio remains a drag on overall growth.
Despite the strong quarter, management stated that 'uncertainty remains elevated' and the low end of the full-year guidance continues to reflect cautious macroeconomic assumptions for the second half.
⚖️ Verdict: 🟢
Bullish. The combination of accelerating revenue growth, a significant guidance raise, and the introduction of a credible long-term margin target demonstrates strong execution and business momentum. The outperformance in the core AECO segment appears secular, and the removal of the investigation overhang de-risks the stock. The weakness in the smaller M&E segment is a minor concern in the face of broad-based strength elsewhere.
Key Themes
AECO Segment Growth Accelerates
The AECO segment was the standout performer, with revenue growing 23% YoY to $878 million. This represents an acceleration from 20% growth in Q1. Management attributes this to sustained investment by customers in data centers, infrastructure, and industrial buildings, which is offsetting softness in commercial real estate. Customer wins like AtkinsRéalis and Kimley-Horn expanding their relationships underscore the trend of enterprises standardizing on Autodesk's platform.
New Long-Term Margin Target Signals Profitability Focus
Autodesk introduced a long-term non-GAAP operating margin target of 41% for fiscal 2029. This would represent a ~500 basis point improvement from reported FY24 levels. Management expects the expansion to be driven primarily by sales and marketing efficiencies from its new transaction model and inherent operating leverage in the business. This new target provides a clear roadmap for significant profit growth over the next three years.
AI Initiatives Gaining Traction
Management highlighted progress in its AI strategy, which focuses on building industry-specific foundation models. A tangible example is the AI-powered Sketch AutoConstrain feature in Fusion, which has delivered over 1.2 million dimensions to users. The acceptance rate for its suggestions has grown to over 60% for commercial users, demonstrating real productivity gains and validating the company's practical approach to deploying AI.
Media & Entertainment Remains a Laggard
The M&E segment grew just 4% YoY to $80 million, significantly underperforming the company's overall 17% growth. This data point contradicts the overwhelmingly positive narrative. While a smaller segment, its persistent weakness, which management previously attributed to the Hollywood strikes, suggests either a prolonged recovery or deeper structural challenges.
Go-to-Market Transition Executing Smoothly
The rollout of the new transaction model, a key strategic initiative to drive efficiency, is progressing well. Management noted that 'operational friction... continues to ease' and pointed to stronger-than-expected performance in the direct-to-consumer Autodesk Store as a positive outcome. This successful execution underpins the company's confidence in its long-term margin targets.
SEC and USAO Investigations Closed
In August 2025, both the SEC and the U.S. Attorney’s Office notified Autodesk that they were closing their respective investigations into the company’s free cash flow and non-GAAP operating margin practices. This removes a significant legal and reputational overhang that began in March 2024, allowing investors and management to focus on operational performance.
Other KPIs
RPO grew 24% YoY, outpacing revenue growth and indicating strong future revenue visibility. The current portion (cRPO), which is expected to be recognized as revenue in the next 12 months, grew 20% to $4.7 billion. This robust backlog is bolstered by tailwinds from the new transaction model and multi-year renewals.
The company generated strong free cash flow of $451 million. Confidence in future cash generation was demonstrated by a significant raise in the full-year FCF guidance to $2.2B-$2.275B and an increase in the FY26 share buyback target to $1.2B-$1.3B, representing a 40-50% increase over FY25.
Guidance
Slightly decelerating. The midpoint of $1.805 billion implies YoY growth of approximately 15% (compared to $1.57B in Q3 FY25). This represents a slight deceleration from Q2's 17% growth but remains a very strong outlook.
Stable. The company raised its full-year revenue outlook, with the new midpoint of $7.05 billion implying ~15% YoY growth. This raise reflects the outperformance in the first half of the year and continued business momentum.
Improving. Guidance was raised from 36.5%-37%. Management noted the underlying margin, excluding the mechanical impact of the new transaction model, is expected to be ~40%, demonstrating progress towards the new FY29 target of 41%.
Improving. Guidance was raised significantly by $88 million at the midpoint. This reflects strong collections and underlying profitability, funding an increased share repurchase program.
Key Questions
M&E Segment Turnaround
M&E growth was only 4%, a significant lag versus other segments. What are the specific drivers of this weakness beyond the historical Hollywood strike, and what is your strategic plan to re-accelerate growth in this vertical?
Margin Bridge to FY29
The new 41% non-GAAP operating margin target for FY29 is a significant step-up. Can you provide more color on the bridge from the ~37% guided for FY26, specifically the expected annual contribution from S&M optimization versus inherent operating leverage?
AI Monetization Strategy
You provided exciting details on your AI foundation models. Beyond driving productivity and retention, what are your early thoughts on direct monetization strategies for these new AI capabilities, whether through consumption, add-ons, or new product tiers?