Synopsys Inc's Earnings Call: IP Growth Guide Sticks to Mid-Teens Despite Inflection Hopes, Ansys Monetization Set for 2027

Date of Call: Aug 26, 2026

Financials Results

• Revenue: $2.477B, up approximately 42% YOY
• EPS: $3.91 per diluted share (non-GAAP), ahead of guidance
• Operating Margin: 41.6% (non-GAAP), at high end of guidance

Guidance:

• Full-year revenue raised by $50M at midpoint, expected range $9.69B to $9.74B.
• Full-year non-GAAP operating margin raised 50 bps, expected 41.5% at midpoint.
• Full-year non-GAAP EPS raised 31 cents at midpoint, expected $15.04 to $15.10.
• Q4 revenue target $2.53B to $2.58B.
• Q4 non-GAAP EPS target $4.10 to $4.16.
• Expect double-digit organic EDA revenue growth in Q4 and for full year 2026.
• Expect IP business to grow sequentially in Q4.
• Ansys revenue contribution expected ~$2.98B for full year, up $20M versus prior guidance.
• Free cash flow raised $600M to ~$2.6B.

Business Commentary:

Outstanding Financial Performance:

• Synopsys reported revenue of $2.477 billion for Q3, surpassing the high end of their guidance, with a non-GAAP operating margin of 41.6% and non-GAAP EPS of $3.91.
• The growth was driven by broad-based strength across the business, particularly in EDA and Ansys, and continued growth in IP.

Acceleration in EDA Segment:

• The EDA revenue increased by 8.5% year-over-year, marking a record quarter for hardware-assisted verification solutions.
• This growth is attributed to increasing design complexity driven by AI demands, leading to a need for advanced chip design solutions.

Strong Performance in Ansys:

• Ansys revenue contributed approximately $711 million to the total revenue, marking one year since the acquisition.
• The strong demand is due to industries embracing digital engineering and the application of AI to automate complex system simulations.

Design IP Growth:

• Design IP revenue reached $474 million, up approximately 11% year-on-year, showing sequential growth.
• This growth is fueled by AI infrastructure demand, with a focus on high-value opportunities like interface, memory, and die-to-die IP.

Agentic AI and Customer Engagement:

• Synopsys demonstrated strong progress in Agentic AI, with over 30 active customer engagements and significant reductions in debug cycle time.
• The customer interest is driven by the ability of AI agents to orchestrate EDA tools, leading to increased design and verification workloads.

Sentiment Analysis:

Overall Tone: Positive

• CEO stated: 'Synopsys delivered an outstanding third quarter with revenue, non-GAAP operating margin, and EPS all exceeding the high end of guidance.' and 'The key takeaway from Q3 is that the fundamentals across our portfolio are strengthening.' CFO noted: 'We delivered an outstanding Q3' and 'With the strength in Q3, strong cash flow generation and continued momentum into Q4, we are raising our full year...guidance.'

Q&A:

• Question from Jason Celino (KeyBanc Capital Markets): What is driving the incremental acceleration in EDA growth to double digits in Q4 and the full year?
  Response: Multiple factors: increasing chip design complexity (e.g., advanced packaging, 3D IC), AI reshaping chip design engineering, and record hardware revenue.

• Question from Jason Celino (KeyBanc Capital Markets): When customers re-engineer their design processes using their own AI models, how does that relate to Synopsys's opportunity?
  Response: Customers still require Synopsys's ground-truth physics and software for accurate AI model operation, representing a significant opportunity for both EDA and IP.

• Question from Joe Vruwink (Baird): How is the 30% EDA software demand forecast from multi-die efforts tracking, and is it accelerating?
  Response: The forecast has accelerated; die-to-die IP wins doubled in the last 12 months due to advanced packaging and 3D IC trends, driving significant EDA and IP opportunities.

• Question from Joe Vruwink (Baird): Is the software performance in EDA where you would like it to be by year-end?
  Response: Very happy with software component performance and excited about the delivery of the joint Ansys solution, which supports future growth.

• Question from Charles Shi (Needham & Company): Is there a risk that AI could disrupt the commercial EDA business with end-to-end AI-native chip design?
  Response: No, it is not a threat but a significant demand driver; Synopsys is at the center, providing essential sign-off leadership and enabling autonomous workflows.

• Question from Charles Shi (Needham & Company): How should we think about AI agents' uplift to EDA revenue growth and business model changes?
  Response: Customer engagements are driving need for more licenses; discussions include various models (subscription, consumption) and are advanced; more details to be shared at Investor Day.

• Question from Lee Simpson (Morgan Stanley): What is the speed of shift to the Factory II (custom IP) opportunity, and how is the security IP business performing?
  Response: Momentum is strong due to hyperscaler custom silicon investments; discussions for license-plus-royalty models are advanced. Security IP is a focus area with strong market position.

• Question from Arseny (Wolfe Research): How are customers approaching the convergence of chip design and thermal analysis workflows with Multiphysics Fusion?
  Response: Leading customers are requiring co-design during implementation; budget-wise, the joint solution captures upside revenue from existing separate tools.

• Question from Arseny (Wolfe Research): Clarification on Ansys contribution raise: is the $20M increase core upside?
  Response: Yes, the raise is due to core business strength, and the full-year accounting benefit remains ~$60M.

• Question from Joe Quatrochi (Wells Fargo): Is AI becoming a larger piece of the business, offsetting non-AI slowdown?
  Response: AI design starts are accelerating, while non-AI has stabilized (no longer declining), providing a good balance.

• Question from Joe Quatrochi (Wells Fargo): Any impact from the divestiture on RPO?
  Response: RPO change was as expected, primarily due to the Processor IP Solutions divestiture closed in Q3.

• Question from Siti Panigrahi (Mizuho): What is the adoption trajectory for Multiphysics Fusion, and will it contribute to EDA growth in 2027?
  Response: Early customer engagements validate significant value (10x faster design closure). Revenue contribution will begin when deployed in production; it will contribute to EDA growth in FY 2027.

• Question from Siti Panigrahi (Mizuho): How is Mike Gallo driving the sales organization for integrated products?
  Response: Focusing on customer engagement, investment in differentiation, and preparing the organization for IP Factory 2 and AI monetization.

• Question from Jay Vleeschhouwer (Griffin Securities): How does the adoption of Multiphysics compare to the previous IC Compiler to Fusion Compiler transition?
  Response: Similar in bringing sign-off capability earlier into the flow but now including physics; significant R&D investment in the Fusion platform's data model ensures comparable value.

• Question from Jay Vleeschhouwer (Griffin Securities): What ingredients are needed for customers to re-engineer their engineering workflows?
  Response: Essential components: complete asset set (like Fusion Compiler) and AI-driven autonomous workflows (demonstrated with Microsoft Discovery and NVIDIA) that exponentially consume software assets.

• Question from Gary Mobley (StoneX): Does the efficiency from GPU-accelerated digital twin systems accrue to NVIDIA or Synopsys?
  Response: Synopsys captures the entire value and uplift from GPU acceleration; NVIDIA benefits by providing the necessary GPU hardware for the compute shift.

• Question from Gary Mobley (StoneX): Why is revenue from Korea trending up ~20% this year?
  Response: Strong collaboration with leading Korean memory customers (Samsung, SK Hynix) and leadership across the portfolio (IP, EDA, Ansys) in the AI infrastructure market.

• Question from Kelsey Chia (Citi): Could IP business achieve stronger growth than the mid-teens long-term guide given current backdrop?
  Response: Mid-teens remains the long-term guide for now; updates will be provided at the September Investor Day.

Contradiction Point 1

IP Business Long-Term Growth Outlook

Contradiction on whether the long-term growth guide for IP is mid-teens or higher.

Kelsey Chia (Citi) - Kelsey Chia (Citi)

2026Q3: The assumptions are valid... but the mid-teens remains the long-term guide for IP growth. - [Sassine Ghazi](CEO)

Given stronger chip design activity and a stabilizing non-AI business, is it unreasonable to expect IP growth stronger than the previous mid-teens long-term guide, and what could prevent higher growth? - Sitikantha Panigrahi (Mizuho Securities USA LLC)

2026Q2: The focus is on capturing more value... The company is confident it will reach an accelerated growth inflection point. - [Sassine Ghazi](CEO)

Contradiction Point 2

Timeline for Monetization of Synopsys-Ansys Joint Solutions

Contradiction on when revenue synergies from the Ansys integration will begin.

Siti Panigrahi (Mizuho) - Siti Panigrahi (Mizuho)

2026Q3: Revenue contribution is expected to begin in FY 2027 as customers move to production. - [Sassine Ghazi](CEO)

What is the adoption/pipeline trajectory for Multiphysics Fusion, and will its 2027 contribution represent incremental EDA growth or share gains from the Ansys base, and are there any pricing benefits? - Liam Pharr (Bank of America, on for Vivek Arya)

20260226-2026 Q1: The first wave of joint Synopsys-Ansys solutions will be delivered in H1 2026, with monetization expected to start in FY 2027. - [Sassine Ghazi](CEO) & [Shelagh Glaser](CFO)

Contradiction Point 3

Impact of China Restrictions on EDA Growth

Acknowledgment of ongoing challenges versus implying a resolved headwind.

Joe Quatrochi (Wells Fargo) - Joe Quatrochi (Wells Fargo)

2026Q3: The non-AI segment, which had slowed, has now stabilized (stopped declining). The AI segment continues to see an acceleration in design starts... - [Sassine Ghazi](CEO)

Is the acceleration in EDA driven by AI growth, non-AI improvements, or offsetting non-AI weaknesses? - Wei Chia (Citi)

20251211-2025 Q4: China restrictions cause share shift to local alternatives. EDA’s long-term double-digit growth will come from Synopsys-Ansys joint solutions and AI-driven workflow changes. - [Sassine Ghazi](CEO)

Contradiction Point 4

Monetization and Business Model for Ansys/EDA Joint Solutions

Transition from speculative future opportunity to a concrete, near-term revenue driver.

Jason Celino (KeyBanc Capital Markets) - Jason Celino (KeyBanc Capital Markets)

2026Q3: The acceleration is driven by... strong hardware-assisted verification performance... AI reshaping chip design processes. - [Sassine Ghazi](CEO), [Shelagh Glaser](CFO)

What's driving the acceleration in Q4 EDA growth? - Yu Shi (Needham & Company)

20251211-2025 Q4: Monetization inflection for EDA software will come from Synopsys-Ansys joint solutions and AI workflow changes. - [Sassine Ghazi](CEO)

Contradiction Point 5

Growth Outlook for the IP Business (Reaffirmed)

Reaffirmation of the mid-teens long-term guide for IP growth despite previous indications of a potential inflection.

Kelsey Chia (Citi) - Kelsey Chia (Citi)

2026Q3: The assumptions are valid (more chip starts, custom silicon opportunities). However, the mid-teens remains the long-term guide for IP growth. - [Sassine Ghazi](CEO)

Given stronger chip design activity and a stabilizing non-AI business, could factors prevent IP growth from exceeding the previous mid-teens long-term guide? - Joshua Tilton (Wolfe Research)

20260226-2026 Q1: Long-term growth targets remain: **EDA (double-digit), IP (mid-teens), and Simulation & Analysis (double-digit)**. - [Sassine Ghazi](CEO)