Synopsys, Inc. (SNPS.US) "AI gear shifting" strategy taking effect: Joining forces with NVIDIA Corporation to boost performance, guidance exceeds expectations.

Chip design software provider Synopsys, Inc. (SNPS.US) has announced its fourth quarter performance. Q4 revenue was $2.26 billion, a 38% year-on-year increase, exceeding the expected $2.24 billion. Adjusted earnings per share were $2.90, higher than the market consensus of $2.88. Of this, the design automation business contributed $18.5 billion, and the design intellectual property business contributed $407 million. Adjusted operating profit increased by 36% year-on-year to $822.6 million, surpassing the expected $803 million. Looking ahead, the company expects revenue for fiscal year 2026 to be between $9.56 billion and $9.66 billion, with analysts expecting $9.63 billion. Projected revenue for the first quarter is between $2.37 billion and $2.42 billion, higher than the analyst's expectation of $2.36 billion; projected adjusted earnings per share for the first quarter are expected to be between $3.52 and $3.58, also surpassing the expected $3.46. The California-based electronic design automation software and semiconductor intellectual property provider achieved a record high revenue of $7.1 billion for the fiscal year 2025, a 15% increase from the $6.1 billion in fiscal year 2024. Shelaag Graze, CFO of Synopsys, Inc., stated that the company had a backlog of orders totaling $11.4 billion at the end of the year. She said, "We expect to set another revenue record in 2026, while fully integrating Ansys, further enhancing operational efficiency, and taking full advantage of our expanding opportunities." Synopsys, Inc.'s software is used by semiconductor companies for chip design and verification. The company is benefiting from increased investments in artificial intelligence and advanced computing, which require more complex chip architectures. The company also benefits from partnerships with companies like NVIDIA Corporation (NVDA.US), Intel Corporation (INTC.US), and Qualcomm (QCOM.US). Earlier this month, NVIDIA Corporation announced a $2 billion acquisition of Synopsys, Inc. shares for the joint development of tools for product development. NVIDIA CEO Jensen Huang said in an interview on December 1, "This marks the first expansion of the computing market into the design and engineering fields." Last month, Synopsys, Inc. announced plans to reduce its workforce by about 10%, in order to reinvest in growth areas such as AI-driven design and system-level solutions. The company completed the acquisition of simulation software manufacturer Ansys in July, contributing $667.7 million in revenue for the fourth quarter. The deal was announced early last year and faced strict antitrust scrutiny in multiple markets, including the UK. Competing in the electronic design automation market with Cadence Design Systems and Siemens, the market is expected to grow as chip manufacturers race to develop AI and high-performance processors. Following the performance announcement, Mizuho Securities described Synopsys, Inc.'s fourth quarter performance for fiscal year 2025 as "better than expected" and noted that their full-year performance guidance for fiscal year 2026 was in line with market expectations. Mizuho noted that the market consensus may have included the impact of asset divestitures, meaning that when adjusted for comparable metrics, the company's performance guidance has actually met or exceeded market expectations. Mizuho emphasized that Synopsys' strong backlog of orders totaling $11.4 billion is a positive indicator for the company's future performance. Meanwhile, Goldman Sachs Group, Inc. reiterated its "buy" rating for Synopsys, Inc. and assigned a target price of $560.