Synopsys Earnings: Promising Signs of Success as the Firm Doubles Down on AI-Based Solutions

We maintain our $480 fair value estimate for narrow-moat Synopsys after the firm reported fiscal first-quarter results, which were largely in line with our revenue estimates while exceeding our expectations for non-GAAP operating margin. We are impressed by Synopsys’ deployment of its artificial intelligence toolkit across customer workflows, which we think will propel chip design productivity as Moore’s law slows. Management maintained its fiscal 2024 outlook for revenue and margins while increasing its non-GAAP EPS guidance. We remain confident in Synopsys’ long-term demand as the firm capitalizes on secular trends toward hyperscale computing, AI, and 5G communications. We believe its pending acquisition of Ansys will deliver ample growth opportunities. We view the shares, which were up around 4% after hours, as overvalued.