Q2 Revenue $1.6B (+10% YoY), Non-GAAP EPS $3.67 Above Guide, Backlog $8.1B (+$400M QoQ), Design IP +21% on AI Interface Demand, FY EPS Guide Raised; ANSYS Awaits China SAMR Clearance, BIS Export Restriction Speculation Acknowledged — Initiating at Hold

Coverage Context — Why Synopsys, Why Now

Synopsys is the leader in electronic design automation (EDA) — the mission-critical software that enables every chip design from the most advanced AI accelerators to embedded automotive controllers. The company is at an inflection moment: (1) the pending $35B acquisition of ANSYS — set to close in H1 2025 — transforms Synopsys from "EDA leader" to "silicon-to-systems engineering platform" by adding multiphysics simulation; (2) AI infrastructure CapEx is driving record design starts at hyperscalers; (3) Design IP demand is accelerating as customers seek SerDes, PCIe 7.0, UCIe, and HBM IP for AI interconnects; (4) but China — which has been a meaningful contributor to the EDA franchise — is in cyclical and structural decline due to BIS restrictions + macro weakness; and (5) the same morning of this print, news reports surfaced speculation about expanded BIS export restrictions that could further impact China sales. We initiate coverage at Hold to participate in the multi-year platform thesis while preserving optionality to upgrade post-ANSYS close and Underperform if China restrictions materialize broadly. Subsequent quarters in this backfill (Q3 FY25 → Q1 FY26) will track the trajectory.

Results vs. Consensus

Q2 FY25 Scorecard

Year-over-Year Comparison

Quality-of-Beat Callout

Revenue / Margin / EPS Assessment

Revenue +10% YoY driven by both segments. Design Automation +6% — modest but against a strong YoY compare (Q2 FY24 was up significantly due to upfront license bookings). Design IP +21% — the breakout segment, driven by AI interface IP demand and customer engagements ahead of leading-edge protocol transitions. Regionally, Europe + Korea offset China headwinds; China remains in cyclical and structural decline.

Non-GAAP op margin 38.0% (+100bp YoY) reflects operating leverage as revenue scales. Design Automation 40.9% — at high end of historical range. Design IP 31.2% — also at high end. FY guide reiterates 40% non-GAAP op margin for the full year, implying continued expansion in H2.

Non-GAAP EPS $3.67 (+22% YoY) includes the building sale gain + bond charges noted above. FY25 EPS guide raised modestly to $15.11–$15.19 (from $14.88–$14.96) — reflecting Q2 outperformance partly offset by net interest expense from the bond issuance. The implied H2 EPS run-rate of ~$3.85+ per quarter is on track.

Capital structure: Cash $14.3B; debt $10.1B (the $10B bond issuance completed in Q2). The bond proceeds + balance sheet positioning is for the pending ANSYS close. Net cash $4.2B. Interest expense begins meaningfully in H2.

Segment / Product Detail

Design Automation — $1.122B (+6% YoY)

Hardware-Assisted Verification — HAPS 200 + ZeBu 200 Launching Strong

HAPS 200 + ZeBu 200 are Synopsys' next-generation hardware-assisted verification systems, offering "the highest performance and ultimate flexibility between prototyping and emulation." Off to a strong start. HAV is one of the highest-growth segments within EDA as AI/HPC chip complexity drives software-bring-up cycles that require hardware-accelerated verification.

Multi-Die / 3D IC — Leadership Position

Multi-die architecture adoption growing rapidly. In Q2, Synopsys supported 40+ chiplet 3D heterogeneous integrated design for a leading HPC AI chipmaker — the most complex such design Synopsys has enabled. Also displaced manual high-bandwidth memory layout flows with 3D IC compiler at a top-tier Asian semiconductor customer. The 3D IC franchise is one of Synopsys' clearest competitive advantages — and integrates directly with ANSYS multiphysics capabilities post-close.

Leading-Edge Process Nodes — First 2-Nanometer HPC Design

In Q2, Synopsys enabled the industry's first 2-nanometer-based HPC design and delivered multiple successful test chips across sub-2-nanometer process technologies. The "angstrom era" — Synopsys' branding for sub-2nm — is the next leg of process technology transitions where Synopsys leads in foundry design technology co-optimization (DTCO).

AI Across the Stack — DSO.ai / VSO.ai / AXO.ai Momentum

• DSO.ai (digital design optimization): Multiple design wins for flagship CPU and GPU cores.
• VSO.ai (verification): Major AI infrastructure customer began large-scale deployment across 5 projects.
• AXO.ai (analog): Major automotive Tier 1 in Japan adopted after extensive evaluation.

Synopsys.ai is the AI-for-EDA franchise — the company has been at the leading edge of this transformation for 4+ years and continues to extend the lead.

Design IP — $482M (+21% YoY) — The Standout Segment

Design IP +21% YoY — the highest growth segment, accelerating from the high-teens of recent quarters. Driven by:

High-Speed SerDes — 224-Gig Multiple Wins

AI infrastructure scaling drives demand for faster data movement. Synopsys' 224-gig PHY (the next-gen interconnect standard) secured multiple competitive wins in Q2. Synopsys is broadly considered the technology leader in high-speed SerDes vs Cadence and other peers.

PCIe 7.0 — First-Mover with 7 Unique Wins

PCIe 7.0 is the next-generation peripheral interconnect standard. Synopsys is the first to market with 7 unique customer wins. PCIe transitions are roughly every 2-3 years and represent significant IP revenue opportunity per cycle.

UCIe — Clear Leader with 20+ Engagements

UCIe (Universal Chiplet Interconnect Express) is the emerging standard for chiplet-to-chiplet communication — critical for multi-die architectures. Synopsys is the "clear leader" with 20+ customer engagements.

NVIDIA NVLink Fusion — Newly Announced

Synopsys announced support of NVIDIA's NVLink Fusion ecosystem — enabling customer XPU designs to integrate with NVIDIA scale-up infrastructure. This positions Synopsys as the IP partner for the broader custom XPU ecosystem.

Assessment: Design IP is firing on all cylinders. The combination of AI infrastructure demand + new protocol transitions (PCIe 7.0, UCIe, 224-gig) + leadership across all interface IP categories supports continued mid-teens growth. The +21% Q2 print is the upside surprise of the quarter.

ANSYS Acquisition Status — Awaiting China SAMR Clearance

The pending $35B acquisition of ANSYS — announced January 2024, expected to close H1 2025 — is the central strategic event for Synopsys.

Regulatory Status

• U.S., EU, UK, others: cleared
• China SAMR: in active negotiation

"We have regulatory clearances in all jurisdictions other than China. We are working cooperatively and actively negotiating with SAMR to secure China regulatory clearance. We continue to anticipate closing in the first half of this year."
— Sassine Ghazi, CEO

Strategic Rationale

ANSYS adds multiphysics simulation to Synopsys' EDA platform — enabling integrated silicon-to-systems design including electronics + thermal + structural + fluid analysis. This is mission-critical for:

• 3D IC / multi-die: Thermal sign-off becomes critical as chiplets stack and consume more power
• Physical AI: Robotics, autonomous vehicles, drones require multi-domain co-simulation
• Digital twins: The next paradigm for product engineering across industries

Assessment: The SAMR clearance is the only gating item. The team's confidence in first-half close is grounded in the back-and-forth nature of the active negotiations + the clearances received in all other jurisdictions on the merits of the deal. The risk: SAMR can drag negotiations as it has done with other deals (e.g., Intel-Tower in 2023). We treat first-half close as central case (~70% probability) with the tail being a Q3 or Q4 close.

The Q2 BIS Speculation — Acknowledged but Unconfirmed

On the day of the print, news reports surfaced speculation about expanded BIS export restrictions targeting EDA software exports to China. Sassine deliberately addressed this upfront in Q&A:

"I acknowledge that we are aware of the reporting and speculations, but Synopsys has not received a notice from BIS. So our guidance that we are reiterating for the full year reflects our current understanding of BIS export restrictions as well as our expectations for year-over-year decline in China. I want to put this upfront as we go through the questions."
— Sassine Ghazi, CEO

Lee Simpson at Morgan Stanley pushed for further detail, noting China was 10% of mix in Q2 (12% Q1). Sassine declined to speculate on potential impact.

Assessment: The BIS speculation creates an overhang that the equity market is processing in real time. If BIS does issue notice, China revenue could decline more sharply than the already-derisked guide. If no notice materializes, the guide is already incorporating the China decline. We bake in the central case (no incremental BIS notice, China declines ~10-15% YoY) but acknowledge the tail risk.

Key Topics & Management Commentary

1. AI Mega-Trend Driving Synopsys Demand

"The mega trends of AI, software-defined systems, and silicon proliferation continue to drive our growth. These trends are increasing design complexity and cost, while also increasing compute performance and energy demands. Synopsys benefits as a mission-critical partner in addressing these challenges and as the industry leader in applying AI to help customers innovate faster."
— Sassine Ghazi, CEO

2. Tale of Two Markets — AI Strong, Non-AI Stabilizing

Sassine's "tale of two markets" framing has been consistent for multiple quarters: AI/HPC robust, industrial/automotive subdued but stabilizing. In Q2, signs of stabilization (and "new energy") emerging in industrial/automotive — first detected in IP demand (customers designing next-gen chips).

3. China Decline Acknowledged in Reiterated Guide

FY24 entry had expected China at corporate average; Q1 communicated below corporate average; now Q2 expects year-over-year decline. The FY25 reiteration explicitly bakes in this decline.

4. Hyperscaler Custom Silicon Opportunity

Sassine described three categories of AI customers: (a) buying merchant chips, (b) ASIC model, (c) full custom silicon. All three are great opportunities for Synopsys — particularly the hardware-assisted verification business as customers need to bring software up before silicon.

5. SNUG Conference — Agentic AI Roadmap

At SNUG Silicon Valley (March 2025), Synopsys laid out:

• L1: Reinforcement learning applied across products (current state)
• L2-L3: Task agents and orchestration (active development; "we are in L2-L3 phase")
• L4-L5: Full autonomous agent engineer technology (future)

The progression mirrors automotive L1-L5 framework.

6. Engineering Reengineering — Six Workflow Areas

Sassine described six engineering workflow areas being transformed by AI + multiphysics (electronics + thermal + structural + fluid). The ANSYS acquisition is central to enabling this transformation across the multi-die package, automotive, drone, robotics use cases.

7. Bond Issuance — Funding ANSYS

$10B bond issuance in Q2; first coupon payment Oct 1. Combined with cash on hand, funds the ANSYS close.

8. AWS Graviton 5 — Already Hinted At (Q4 FY25 Disclosure)

While not explicitly mentioned in Q2, Sassine referenced multi-die wins and 3D IC partnerships with leading HPC AI chipmakers — context that will mature into the AWS Graviton 5 disclosure in Q4.

Analyst Q&A

China revenue mix + potential BIS impact

Q: "We note that China sales are now 10% of the mix, I think, 12% in Q1. And you're now talking about a decline in China for the year. So are we to see this as, you know, probably high single-digit percent in the mix? And I think the added question here, I suppose, is if that's the sales portion, do we think there's a group average similar margin for the China business?"
— Lee Simpson, Morgan Stanley

A: "Recall as we started sometime in FY24 communicating that we are seeing both a cumulative impact of the restrictions in China as well as the macro situation inside China, have caused us to continue on communicating that this deceleration will continue. … Now halfway through our fiscal year, by us reiterating the year, we are taking into account that China will be declining year over year. … As far as the other part of your question regarding impact on operating margin, etc., we cannot speculate about any potential impact to notice that we have not received."
— Sassine Ghazi, CEO

Largest customer (Intel) — exposure framework

Q: "On your largest customer, they've been reducing R&D spend. Is that still a growth area for you? And how do you see market share evolve at that largest customer versus peers? Are there any areas that are more open to competition versus others?"
— Vivek Arya (Liam Farr), Bank of America

A: "I'm assuming you're talking about Intel in this case. … Intel has a mix of EDA software, IP, and hardware. These are multiyear committed agreements. And same as with other customers, as their roadmap may be fluctuating or there are some rethinking about the roadmap, it does not impact generally the EDA software. There might be some impact on hardware and IP pull-down even though those agreements are committed. Non-cancelable, there might be quarter-over-quarter fluctuation, but that's really about it at this stage."
— Sassine Ghazi, CEO

ANSYS deal — plan B scenarios

Q: "On the ANSYS deal that's still pending, if in the scenario that the deal gets pushed out or doesn't close, what's the plan B and how do you address the need to have more of the design to build these organically strategy of your cadence that's kind of been developing that for the last couple of years since you announced the ANSYS acquisition?"
— Vivek Arya (Liam Farr), Bank of America

A: "This transaction, as we have communicated, is so consequential, not only for Synopsys and ANSYS, but also for the industry. The support we got from our customers in relation to this transaction directly to regulators that it's a great opportunity to accelerate innovation is something that is essential for us. … the confidence is high that this is the scenario for us to consider is if you look at the approvals we have received across all jurisdictions. And currently, as I mentioned in my prepared remarks, we are in active negotiation with SAMR as well as anticipating closure in the first half of this year. This is really the option we're focused on at this stage."
— Sassine Ghazi, CEO

Non-AI customer design activity

Q: "You talked about strong demand on the AI side. Sassine, I'm wondering what kind of design activity you're seeing on the non-AI customer base, especially have you seen any kind of changes there?"
— Sitikantha Panigrahi, Mizuho

A: "Yeah. … the tale of two markets, on one hand, you have and I'm talking in particular semiconductor customers. The AI, HPC infrastructure build-out remains very strong. For a while, anything industrial automotive was declining in terms of roadmap at our customer, even though their R&D is stable, but the new chips or accelerating design has been muted for a while. And now in industrial and automotive, we actually see more stabilization and new energy and vitality happening in that market. And where we see it first is in our IP portfolio."
— Sassine Ghazi, CEO

RPO growth + customer perception

Q: "Taking the numbers from the queue for RPO and current RPO. It looks like your current RPO increased by about $100 million or so, maybe more sequentially. Implying roughly high single-digit year-over-year over year versus mid-single. Coming out of Q1."
— Jay Vleeschhouwer, Griffin Securities

A: "I think as we talked about even in my prepared remarks, we're you know, we both significant backlog. We're up $400 million. … as the team was outlining what we're seeing in the industry, that's really why we're seeing the strength in the business. And continuing to build the backlog, part of which is in the shorter-term duration that you're talking about. So we do see a strong business environment that we're operating in."
— Shelagh Glaser, CFO

Engineering reengineering + agentic AI implications

Q: "You made some very interesting comments regarding the need for engineering workflows to change, and you alluded to six areas specifically. … You've spoken of a tale of two markets. Perhaps there's a tale of two AIs. AI to date has been largely about optimization, which is classic classical EDA productivity, but I'm wondering if with agentic AI, customers' considerations for managing that process will change significantly."
— Jay Vleeschhouwer, Griffin Securities

A: "We really covered two concepts at SNUG. One is the reengineering engineering and the second one is the move to what we call agent engineer solutions. … if you take a multi-die advanced package system, there, the challenge is not only electronics … the challenge becomes how do you take into account the thermal structure fluid to cool it off, etc., during the design phase. … Where we are right now with agent engineer technology we're seeing some great opportunities for specific tasks say RTL, formal verification, etc., that the human engineer will define the target, the goal and you can pass it to an agent to deliver on an outcome. … which will give us an opportunity to change the monetization from the traditional EDA to a new opportunity as delivered that value to our customers."
— Sassine Ghazi, CEO

China deceleration deeper than expected

Q: "I think you mentioned that you're now expecting revenue from China this year to be down year on year. If I remember correctly, I think you started the year with growth in China to be at corporate average. Then you take that down to below group average. So I was wondering if there are any changes in the business environment in China, anything that changed in the last three months."
— Nay Soe Naing, Berenberg

A: "There is nothing per se different happened in China that the cumulative effect we thought it's prudent. For us as we look at the full-year guidance to say, can we reiterate that guidance with the decline happening in China and is yes. … that's due to the strength that we are seeing and have seen in other regions as well in the complete part of the portfolio. … we have always planned the year in a 45-55 fashion. Forty-forty-five percent the first half, fifty-five percent the second half."
— Sassine Ghazi, CEO

BIS commerce department insight question

Q: "If the commerce department was nearing a point of restricting a broader swath of your sales into China, do you think you would have heard about it by now or received evidence before today? Because in the past, I think the EDA vendors have actually had pretty good foresight on commerce deliberations."
— Joe Vruwink, Baird

A: "Joe, based on history, we had different flavors of either having insights, having a heads up, or not. The reason I wanted to address that point upfront because I saw the reporting and the swirling of the speculations. And all I can say at this stage is we have not received anything from BIS, and I cannot speculate why, why not, etc., but there is nothing at this stage that Synopsys has received."
— Sassine Ghazi, CEO

GPU acceleration pricing + supply chain

Q: "Your customers do see some benefit as you shift more of your EDA tools to GPU-based compute and away from retrieval-based compute. … So my question to you is, you know, what is the pricing benefit?"
— Gary Mobley, Loop Capital

A: "The one product actually that has the introduced first and has been talked about regarding the GPU acceleration is Proteus, which is an OPC product in manufacturing. Where it's a very, very heavy compute step in the process development, and we're talking about thousands of CPUs for every run. … with GPU, and, again, this is what we talked about at SNUG, etc. Fifteen x plus speed up using a GPU. … And we absolutely price it based on the total cost of ownership that our customer is seeing by moving from a CPU to a GPU in that case."
— Sassine Ghazi, CEO

China revenue decline path + recurring revenue

Q: "Somebody else already kind of walked you guys through the timeline of what you're expecting for China going into the year, and how you kind of walked that back a little for the last two quarters. And I guess I'm trying to reconcile is you still hit numbers this quarter, so was the China revenue in Q2 in line with expectations? Or was that below what you guys thought you were going to do?"
— Joshua Tilton, Wolfe Research

A: "Josh, as you zoom out and you think about how do we forecast and therefore guide, there are the puts and takes that we have in place. And what we have hit in Q1 and Q2 for China was in line with what we forecasted internally. … the first half, if I'm not mistaken, it's a minus 28% in China. We're not assuming that the second half is gonna continue declining at that level."
— Sassine Ghazi, CEO

What They're Not Saying

• No specific framework for FY25 China revenue dollar magnitude. "Decline" is acknowledged but exact magnitude is opaque.
• BIS scenario impact on operating margin. Sassine explicitly declined to speculate.
• Specific timing of ANSYS close. "First half" stated but no specific date or window narrowing.
• FY26 framework. No initial commentary; will be framed at Q4 FY25 print in December.
• Detailed monetization framework for agentic AI workflows. Strategic direction described but specific pricing/business model not yet detailed.
• Specific China customer share-shift dynamics. Acknowledged share shift to domestic alternatives in restricted segments but not quantified.

Market Reaction

• Pre-print (May 27 close): ~$485. Stock had drifted from year-highs of $580+ in early 2025 on China concerns + ANSYS regulatory uncertainty + general semis pullback.
• Day-of (May 28): Print landed after-hours. Initial reaction modest positive on EPS beat + IP +21%. Concerns about BIS overhang weighed on after-hours.
• Day-after (May 29): Stock closed ~$470 (-3%). Volume ~3.5M shares (~1.5x 30-day average).
• Peers (day-of): Cadence (CDNS) -1%; KLA flat; AMAT -0.5%. EDA/semi-cap mixed.
• Sell-side flow: Maintained ratings broadly; price targets steady $550-$600 range. Bull thesis: AI mega-trend + ANSYS optionality + IP leadership. Bear thesis: China decline + BIS overhang + ANSYS close timing risk.

Interpretive read: The market processed Q2 as "fundamentals strong but overhangs material." Stock at $470 (~31x forward FY25 EPS, ~12x EV/sales) reflects modest discount vs Cadence (~35x) appropriate given the China + ANSYS uncertainties. The June ANSYS close target is the key short-term catalyst.

Street Perspective

Debate 1: Will the ANSYS deal close in H1 2025?

Bull view: All non-China jurisdictions cleared on merits. SAMR negotiations are "active" and Sassine's confidence is grounded in the back-and-forth dynamic. The deal has no overlap with Chinese national champions; the merits are clear. H1 close (June 2025) at 70%+ probability.

Bear view: SAMR has been increasingly assertive in cross-border M&A as a strategic lever. The Intel-Tower precedent (eventually withdrawn after SAMR delay) is the cautionary template. Closure could slip to Q3/Q4 2025 — creating uncertainty for FY25 ANSYS contribution.

Our take: H1 close at 70% probability; H2 close at 30%. A meaningful slip would impact FY25 ANSYS revenue contribution but not the long-term thesis.

Debate 2: How much further can China decline?

Bull view: China is now 10% of mix vs 16% peak. Most of the decline is structural (entity list + technology restrictions, not cyclical). FY25 baseline assumes year-over-year decline. The remaining China revenue is at customers who CAN buy Synopsys; further BIS expansion would impact ~$200-300M of remaining China revenue at most.

Bear view: BIS speculation creates incremental tail risk. If broader restrictions hit, China could decline 40-50% from current levels (already declining), creating $300-500M revenue headwind. Reiterated guide may not survive a material BIS notice.

Our take: Central case is no further BIS expansion; China declines 15-20% YoY in FY25 (incorporated in guide). Tail case is BIS notice in H2 2025 leading to further $200M+ headwind. Sized risk-reward keeps us at Hold.

Debate 3: Can the IP segment sustain mid-teens growth?

Bull view: AI infrastructure scaling = sustained demand for high-speed interconnect IP (PCIe 7.0, UCIe, HBM, SerDes). The protocol transition cadence has accelerated (now ~2-3 year cycles vs 3-4 years historically). Synopsys' one-generation-ahead approach + multi-foundry support = structural advantage. FY25 IP +20%+ achievable; mid-teens sustainable.

Bear view: IP growth is lumpy by nature. Q2 +21% may not sustain; customer customization requirements increasing R&D intensity could compress margins. Hyperscaler in-house design teams competing with Synopsys IP in certain titles.

Our take: IP +mid-teens through FY26 is achievable given the visible protocol cadence and customer engagements. Sustained mid-teens through FY27+ depends on continued protocol leadership and customer relationships. Net positive contributor to growth.

Model Implications & Thesis Scorecard

Model Assumptions

• FY25 estimates: Revenue $6.78B (+11% YoY); non-GAAP EPS $15.15 (+19% YoY) — at midpoint of new guide; op margin ~40%.
• FY26 estimates (organic, pre-ANSYS): Revenue $7.4B (+9%); EPS $17.50.
• FY26 with ANSYS half-year: Revenue $8.5-9.0B; EPS $16-17 (debt service drags).
• Long-term framework: $20B+ combined revenue by FY30 with op margin in mid-40s.

Thesis Scorecard

Rating & Action

Initiating Coverage at Hold. Synopsys is the leader in EDA + the pending ANSYS acquisition transforms the platform into silicon-to-systems engineering. Q2 execution is excellent — revenue +10%, IP +21%, backlog +$400M QoQ, FY EPS guide raised. But three open binary questions warrant Hold rather than Outperform: (1) ANSYS deal closing timing depends on SAMR negotiations; (2) BIS export restriction speculation creates incremental China tail risk; (3) China revenue decline magnitude is set conservatively but not fully bounded. We do not initiate at Underperform because the underlying execution is excellent, the long-term thesis is intact, and the valuation already reflects the overhangs.

Fair value range: $450–$580. Stock at ~$470 sits in the lower-middle of our range. We re-evaluate up to Outperform on (a) ANSYS deal close in H1 + clean integration framing, (b) absence of BIS expansion through Q3, (c) China stabilization signals. We re-evaluate down to Underperform on (a) BIS expansion notice materializing, (b) ANSYS deal slip beyond H2 2025, (c) IP growth decelerating from current pace.

Key watch items into Q3:

• ANSYS deal close — likely event in June/July 2025
• BIS export restriction action — risk over next 60-90 days
• China Q3 trajectory — does the -28% H1 pace moderate?
• IP segment Q3 performance — can the +21% sustain?
• Hardware-assisted verification (HAPS 200 + ZeBu 200) revenue ramp
• NVIDIA NVLink Fusion customer engagements