FY25 Record Revenue $7.05B (+15%); Q4 In Line with Guide, EPS $2.90 Above; FY26 Guide $9.61B Midpoint with Non-GAAP Op Margin 40.5% (+320bp YoY); ANSYS $2.9B FY26 Contribution; NVIDIA Strategic Partnership + $2B Investment; OSG + PowerArtist Divestitures Closed — Upgrading to Hold

Coverage Update from Q3

We downgraded to Underperform three months ago at ~$430 with a $380-$480 fair value range, citing the ~16% EPS guide cut, multi-year IP transition, 10% headcount reduction, and Intel foundry overhang as the principal concerns. The Q4 print + FY26 framework substantially derisks the downside scenario: (1) Q4 came in at high end of guide with EPS slightly above; (2) FY26 guide framework shows op margin expanding +320bp despite muted IP — driven by ANSYS + cost synergy acceleration; (3) NVIDIA $2B strategic investment provides validation; (4) debt paydown ahead of schedule. The IP transition continues but is being managed; the worst of the multi-quarter headwinds appears behind. We upgrade back to Hold reflecting (a) the FY26 framework is reasonable, (b) the strategic narrative is restored, (c) capital structure repair is on track. We do NOT yet upgrade to Outperform — IP business remains in transition and China headwinds persist.

Results vs. Consensus

Q4 FY25 Scorecard

FY25 Full Year Comparison

Quality-of-Beat Callout

Revenue / Margin / Cash Assessment

FY25 revenue $7.05B (+15%) includes 5 months of ANSYS ($757M). Excluding ANSYS, organic Synopsys revenue ~$6.30B (+3% YoY) — reflecting the strong DA ex-ANSYS (~+8%) offset by IP -8%. Q4 alone: ANSYS $668M = ~30% of quarterly revenue.

Non-GAAP op margin 37.3% FY25 — down 270bp YoY due to IP weakness + ANSYS integration costs. Q4 alone 36.5%. FY26 guide 40.5% (+320bp YoY) reflects: (a) full year of ANSYS at higher op margin, (b) cost synergy realization from 10% headcount reduction, (c) operating leverage as integration costs subside.

FY25 EPS $12.91 — above the $12.76-$12.80 guide. Down 2% YoY but in line with the revised framework. FY26 EPS $14.32-$14.40 = ~12% growth midpoint. The progression: FY26 EPS growth driven by ANSYS contribution + cost synergies + operating leverage despite muted IP.

FCF $1.35B FY25 — above the $950M guide due to accelerated collections. FY26 FCF ~$1.9B (+$550M) reflects: ANSYS full year, debt repayment reducing interest expense in H2, completion of restructuring outflows ($225M one-time). $135M incremental cash taxes from divestitures.

Capital structure: Cash $2.96B; debt $13.5B. Repaid $850M Q4 + $900M Nov + plan $2.55B prepayment FY26 = $4.3B term loan repayment plan. NVIDIA $2B investment accelerates deleveraging. Pro forma debt by end FY26 around $9-10B.

FY26 Guide Framework — Detail

The FY26 guide is the central analytical anchor for the SNPS investment thesis going forward.

FY26 Composition Decode

• EDA software (ex-ANSYS, ex-IP): Growing single digits — China BIS overhang + tale of two markets in non-AI semiconductors
• Hardware-assisted verification: Continued strong demand from AI HPC customers
• ANSYS: $2.9B (+double-digit), strong demand across industrial, aerospace, automotive, hyperscale
• IP: Muted growth, sequential improvement through year, back-half weighted
• Divestitures: -$110M from OSG + PowerArtist (closed Oct 2025)

The NVIDIA Strategic Partnership + $2B Investment

The NVIDIA strategic partnership announced in December is the most significant strategic event of Q4 beyond the operational results.

Partnership Components

1. GPU acceleration of Synopsys + ANSYS products: Multi-product roadmap to deliver GPU-accelerated versions of EDA + S&A products. Expected 15x+ performance improvement on compute-heavy products like Proteus (OPC). Joint R&D investment + roadmap commitment.
2. NVIDIA Omniverse integration for digital twin / physical AI: Combined Synopsys + ANSYS multiphysics simulation integrates with NVIDIA Omniverse to enable accurate digital twins for physical AI applications (robotics, autonomous vehicles, drones).
3. $2B NVIDIA equity investment in Synopsys: NVIDIA committed $2B in equity, which Synopsys is using to accelerate term loan repayment. The investment dilutes shareholders by ~2% but provides strong strategic validation.

"The discussion with NVIDIA started around how do we accelerate at the computational level with the GPU and that's something that is already a number of our products. … Then it went up to the Omniverse level, how to modernize or the way we refer to it, how do we reengineer engineering for intelligent systems? … The financial aspect was second because as you can see, we have a very strong balance sheet. And we welcome the $2 billion investment."
— Sassine Ghazi, CEO

Assessment: The NVIDIA partnership is highly unusual at this scale for NVIDIA equity investments — Jensen has explicitly endorsed Synopsys + ANSYS as the silicon-to-systems platform partner. Three implications: (a) accelerates Synopsys' GPU-acceleration roadmap, (b) strengthens go-to-market positioning, (c) signals broader strategic validation that the ANSYS acquisition + AI direction is correct. Net materially positive for the multi-year thesis.

Segment / Product Detail

Design Automation (incl. ANSYS) — $5.3B FY25 (+26% YoY)

Full year DA segment revenue $5.3B — up 26% incl. ANSYS, +8% ex-ANSYS. Q4 specifically: $1.84B (estimated; full breakdown not provided). DA segment now serves silicon-to-systems engineering with strong growth across:

Hardware-Assisted Verification — Record Year

Record HAV year with 12 competitive wins in Q4 alone. Demand driven by AI/HPC complexity requiring software bring-up before chip availability. HAPS 200 + ZeBu 200 + EP family (hybrid emulation/prototyping) all ramping strongly.

EDA Software — Resilient

EDA software continued steady growth. AWS Graviton 5 example: Synopsys tools (VCS, Primetime, Fusion Compiler, IC Validator) critical to design of AWS Graviton 5 custom chip with impressive gen-on-gen performance gains. Nearly 5,000 active users at tier-one semi customers using Synopsys.ai assistive + creative capabilities.

Multi-Die Design — Continued Momentum

Multi-die momentum continuing — 3DIC Compiler platform adoption growing. Strong customer enthusiasm about integrating Synopsys semiconductor timing/power sign-off with ANSYS thermal sign-off (first joint solution H1 FY26).

ANSYS — $668M Q4; $757M FY25 Partial

ANSYS strong Q4 performance — robust growth across key industries. Industrial, hyperscale, automotive, aerospace all contributing. ANSYS 2025 R2 released providing AI-driven simulation + GPU acceleration + cloud computing capabilities.

Design IP — $1.75B FY25 (-8%) — In Line with Revised Expectations

Q4 IP performed in line with Q3-revised expectations. Notable Q4 wins despite the transition:

• 13 PCIe 7.0 design wins in FY25
• First-to-market 224 gig SerDes — silicon-proven
• UA link first-mover
• 10 competitive wins for LPDDR6 and MRDIMM2 memory IP

FY26 IP outlook: muted growth, sequential improvement, long-term mid-teens target maintained. Back-half FY26 weighted as IP roadmap titles become available.

Key Topics & Management Commentary

1. NVIDIA Strategic Partnership — Multi-Layered

The NVIDIA partnership represents validation across technology + commercial + financial dimensions. Sassine: "This is not a press release partnership. It's a deep commitment from both companies that we both saw a market opportunity that we want to accelerate and capture."

2. FY26 Op Margin Expansion +320bp

FY26 op margin 40.5% (vs 37.3% FY25) is the meaningful framework signal — Synopsys is delivering on the cost synergy commitment despite the IP transition.

3. Debt Paydown Accelerating

$4.3B term loan repayment in flight. $850M Q4 + $900M Nov + $2.55B FY26 plan. NVIDIA $2B investment accelerates deleveraging.

4. Capital Allocation Discipline

Free cash flow priority: business reinvestment → opportunistic share repurchases → debt paydown. No formal buyback program reinstated yet given debt focus.

5. ANSYS Cost Synergy Acceleration

Original synergy: $400M run-rate by year 3. Now: "We're working on accelerating that into year 1 and year 2, which is 2026."

6. IP Resource Pivot Continuing

IP titles being repositioned toward HPC. Engineering teams merged. Sales leadership new. Closing roadmap gaps midyear FY26.

7. China Persistent Weakness

FY25 China down 18% incl. ANSYS; -22% ex-ANSYS. FY26 outlook: continued challenging environment. Sassine: "There is some share shift happening inside China."

8. AWS Graviton 5 — Public Customer Reference

AWS Graviton 5 launch referenced as concrete example of Synopsys EDA enabling hyperscaler custom silicon. VCS, Primetime, Fusion Compiler, IC Validator critical to the design.

9. Mike Aloe Named CRO

Industry veteran joining as new Chief Revenue Officer. Signals continued sales leadership refresh post Q3 IP issues.

10. Multi-Die Joint Solution H1 FY26

First Synopsys + ANSYS joint solution targeting multi-die thermal sign-off integration coming H1 FY26. Customer enthusiasm strong.

Analyst Q&A

FY26 organic growth + IP outlook

Q: "The embedded organic growth rate in the 2026, you know, guide, I don't know if there's a way for us to, you know, understand what that might be and what that might imply for IP growth. I'm okay at math, but I'm just a sell-side analyst. I mean, if we adjust for the ANSYS and the divestitures, I'm getting, like, 8% growth organic. I ask the question because I'm just trying to understand the level of conservatism."
— Jason Celino, KeyBanc Capital Markets

A: "It's definitely in that ballpark. … the disposition of the Optical Solutions Group and the PowerArtist Group, but it's $110 million. So that's about a point and a half. … As we talked about in Q3, we do anticipate a muted year of growth for IP. We are very much, well into, repositioning workforce to build out the HPC titles so that we've got those fully available for customers. … as I talked about ANSYS, our guide for ANSYS is $2.9 billion at the midpoint. And that's double-digit growth for ANSYS. So we're trying to be pragmatic with our forecast in light of the body of work that the IP team needs to do in '26."
— Shelagh Glaser, CFO

EDA growth + China dynamics

Q: "If I exclude ANSYS to the person that asked the question before me, the core EDA plus IP is going about eight, eight and a half percent year over year in the fiscal year guidance. Can you just help us understand what you're embedding for growth in EDA and IP? In the guidance, for example, if I assume IP is going modestly as you guys say, let's say 5%, then your EDA business is growing around 9%. Which is still below kind of your forward target of, like, 12, 13%."
— Harlan Sur, JPMorgan

A: "In EDA, we're taking a couple of things into account. One, the China environment. Where the cumulative impact of restrictions is something that we are seeing and seen in '25 that has had an impact is different than say, 2020, '21 time frame where many start-ups and significant spending was happening in China. And the other factor is we're still operating in a tale of two markets. There are a number of companies that they're building chips for industrial, automotive, and anything outside the AI infrastructure build, their road map is somewhat muted."
— Sassine Ghazi, CEO

NVIDIA partnership rationale + investment

Q: "Last week, you had your announcement of the NVIDIA partnership and the investment in the company. Can you maybe give us a little bit more color on sort of the rationale for why an investment made sense?"
— James Schneider, Goldman Sachs

A: "The discussion with NVIDIA started around how do we accelerate at the computational level with the GPU … Then it went up to the Omniverse level, how to modernize or the way we refer to it, how do we reengineer engineering for intelligent systems? … the financial aspect was second because as you can see, we have a very strong balance sheet. And we welcome the $2 billion investment. … the discussion with Jensen moved to, I want to endorse it with an investment because I know we can make money."
— Sassine Ghazi, CEO

EDA single-digit growth + share dynamics in China

Q: "So you mentioned that it lowered EDA growth in fiscal year twenty-six is due to slower chip design momentum in China. Is that the same reason for the lower growth rate this year as well? And are there any share shift dynamics happening over there? And if synergies with ANSYS could drive that revenue growth back to target?"
— Kelsey Chia, Citi

A: "As it relates to China, there is some share shift happening inside China. Because, you know, when you restrict the sale of EDA or IP, the customers in China are looking for alternatives. And that is happening, and it's happening at an accelerated rate. The customers we can serve, we're fine selling to, and they're buying from Synopsys, Inc. or other. The companies we cannot sell to, they are looking for alternatives, and these alternatives are typically organic local, EDA or IP companies. … In terms of the longer-term growth opportunities for EDA, and that's why we still standing behind double-digit growth for EDA. It's gonna come from the joint solutions between Synopsys, Inc. and ANSYS."
— Sassine Ghazi, CEO

ANSYS double-digit growth confidence

Q: "Double-digit growth for next year is pretty good. So I'd love to hear what's baked into that in terms of the jumpsuit there. … Do you expect them to convert to subscription?"
— Sitikantha Panigrahi, Mizuho

A: "There are two markets we're serving with the ANSYS portfolio. There is the semiconductor market. That the joint solutions will bring an opportunity to uplift our pricing as we integrate the ANSYS solution with the EDA solution that we offer today. Then the rest of the ANSYS market, if you look at the significant transformation that's happening on how to develop a modern car, robot, any industrial applications, drones, etcetera, aerospace, those are all customers of ANSYS. And the demand, the increase in R&D investment that we are seeing in those markets is giving us the confidence to continue on expanding the growth opportunity."
— Sassine Ghazi, CEO

IP recovery timing + structural opportunity

Q: "I'm trying to, you know, gauge whether the IP business is, you know, did it. Because if I look at your Q4 IP and I just annualize that, that's about $1.6 billion in change. But if I assume that it grows modestly, that's more like 1.8, you know, billions, right, or so."
— Vivek Arya, Bank of America

A: "I really urge you not to look at it from a quarter basis because the IP business, as we often refer to, can be lumpy. I am very confident, very confident in our portfolio, as well as the market position we have. We were very transparent in Q3, that there were a couple of titles that we needed to do some work to accelerate our road map to deliver to customers. … I have no doubt that we will capture the opportunity for these couple of titles."
— Sassine Ghazi, CEO

FY27 IP mid-teens recovery timing

Q: "That midyear time frame, would you expect to know by then the magnitude of commitments you have in hand so that FY '27, you can maybe make the statement it will be back to mid-teens growth."
— Joe Vruwink, Baird

A: "Just let me clarify the midyear. We're not waiting for us to talk to the customer until midyear. We talk to the customer, we have active engagement and even in contract phases with customers based on their road map and based on our road map of delivery. We have established very strong trust with those customers. … The other thing I'll point out in terms of IP and in general is the strength of the backlog we're entering the year. Entering the year at $11.4 billion in backlog."
— Sassine Ghazi, CEO

China revenue mix + competitive dynamics

Q: "I do have one question on sort of where you are with China revenue. It's still meaningful. Exit rate around 10% of overall revenue. And I'm wondering if you could talk about the mix there and if the headwinds that you're, you know, sort of seeing in the pragmatism is across, you know, the mix?"
— Ruben Roy, Stifel

A: "The Synopsys Classic had a decline in China. The ANSYS portfolio performed fairly well in China. Because they sell to a very broad market that is not restricted. … On the classic Synopsys side, what we're facing in China is primarily our inability to sell to the market that needs the most advanced solution. … From IP standpoint, where it impacts us the most is in IP, given the proportion of our business and our leadership in IP."
— Sassine Ghazi, CEO

What They're Not Saying

• Specific FY26 quarterly cadence. 48/52 H1/H2 split provided but no quarterly breakdown.
• FY27 framework. "Long-term mid-teens IP" reiterated but no specific FY27 numbers.
• Specific NVIDIA investment dilution mechanics. $2B equity investment but not detailed on share count impact.
• Joint solution H1 FY26 revenue contribution. First solution coming but no monetization detail.
• Detailed BIS scenario planning. Reiterated current understanding but no broader scenarios.
• ARC processor IP business future. Not yet announced as divestiture target (announced Q1 FY26).

Market Reaction

• Pre-print (Dec 9 close): ~$460. Stock had drifted up from Q3 lows on ANSYS deal close + NVIDIA partnership rumors.
• Day-of (Dec 10): Print landed after-hours. Initial reaction +5% on Q4 beat + FY26 framework + NVIDIA partnership formalization.
• Day-after (Dec 11): Stock closed ~$480 (+4%). Volume ~3M shares (~1.5x 30-day average).
• Peers (Dec 11): Cadence (CDNS) +1%; KLA flat; ANSYS-related plays mixed.
• Sell-side flow: Several upgrades from Hold to Buy; PT raises into $500-$550 range. Bull narrative restored around NVIDIA partnership + cost synergy execution. Bears focused on IP transition.

Interpretive read: The market processed Q4 as confirmation that the worst is behind. Stock at ~$480 reflects rerating back toward our $450-$580 range. The combination of clean Q4 + reasonable FY26 framework + NVIDIA validation + capital structure repair is meaningful. The path back to $550-$580 over 6-12 months depends on FY26 execution.

Street Perspective

Debate 1: Is the IP transition really stabilizing?

Bull view: Q4 IP performed in line with revised expectations. Strong Q4 wins (13 PCIe 7.0, 224 gig SerDes first-to-market, 10 LPDDR6/MRDIMM2). Roadmap pivots in flight. FY26 muted but sequential improvement.

Bear view: "Muted growth" is still weak. Foundry customer overhang persists. China BIS impact ongoing. IP could remain depressed through FY27.

Our take: The Q4 in-line performance reduces near-term downside risk. FY26 IP at +mid-single-digit is achievable. Long-term mid-teens visibility depends on roadmap delivery through FY26. Net: stabilizing but not yet recovering.

Debate 2: Does FY26 op margin 40.5% bridge to long-term mid-40s?

Bull view: ANSYS integration + 10% headcount reduction + AI productivity all drive sustained margin expansion. Mid-40s op margin achievable by FY27-FY28.

Bear view: IP margin compression continues to drag. Revenue growth needed for further margin leverage. Mid-40s may be FY28-29 timing.

Our take: 40.5% FY26 is a meaningful step toward the long-term target. Mid-40s by FY28 achievable if IP recovers and revenue growth supports operating leverage.

Debate 3: Is the NVIDIA partnership transformational?

Bull view: NVIDIA's $2B equity commitment at this scale is unusual and signals strategic alignment. GPU acceleration roadmap supports pricing power. Omniverse integration positions for physical AI digital twin opportunity.

Bear view: The partnership monetization is multi-year. Specific revenue contribution unclear. NVIDIA $2B investment is small relative to Synopsys $80B+ market cap.

Our take: Strategically positive but monetization is multi-year. The partnership validates the silicon-to-systems direction and provides incremental optionality. Net positive contributor to medium-term thesis.

Model Implications & Thesis Scorecard

Model Update

• FY25 actuals: Revenue $7.05B (+15%); EPS $12.91; op margin 37.3%
• FY26 estimates: Revenue $9.61B (+36% incl. full ANSYS); EPS $14.36; op margin 40.5%
• FY27 estimates: Revenue $10.5-11B (+10%); EPS $16-17; op margin 42-43% as IP recovers
• Long-term: Combined platform reaching mid-40s op margin by FY28-29

Thesis Scorecard

Rating & Action

Upgrading to Hold from Underperform. Q4 + FY26 framework substantially derisks the multi-quarter downside scenario we flagged at Q3. The FY26 op margin guide of 40.5% (+320bp YoY) demonstrates that ANSYS integration + cost synergy realization can drive earnings growth despite muted IP. The NVIDIA strategic partnership + $2B investment provides validation of the long-term silicon-to-systems thesis. Capital structure repair on track with $4.3B term loan repayment in flight. We upgrade to Hold rather than Outperform because (a) IP transition continues through FY26, (b) China headwinds persist, (c) FY26 single-digit organic growth (ex-ANSYS) leaves limited margin for error.

Fair value range: $450-$580 (revised from $380-$480). Stock at ~$480 sits in the middle of our range. We re-evaluate up to Outperform on (a) Q1 FY26 print confirming framework, (b) IP segment Q1 performance in line with framework, (c) explicit FY27 framework formalization. We re-evaluate down on (a) Q1 missing framework, (b) IP weakness intensifying, (c) further BIS expansion materializing.

Key watch items into Q1 FY26:

• Q1 FY26 print — first quarter of FY26 framework; ANSYS full quarter
• IP segment Q1 — sequential trajectory
• Multi-die joint solution H1 FY26 delivery
• Cost synergy realization pace
• Debt paydown progress
• NVIDIA partnership customer engagement signals
• China BIS / export restriction landscape
• Capital allocation framework (buyback reinstatement potential)