Synopsys (SNPS) shares slid approximately 9.4% to $476.40 on Thursday, underperforming the broader semiconductor sector even after the company boosted its fiscal 2026 revenue and profit forecasts following better-than-expected second-quarter sales.
The electronic design automation (EDA) leader reported Q2 revenue of $2.276 billion, up from $1.604 billion a year earlier, with adjusted earnings of $3.35 per share. On a GAAP basis, profit fell to $0.09 per share from $2.24, reflecting costs tied to recent acquisitions. The company raised its full-year guidance, now projecting revenue between $9.625 billion and $9.705 billion and adjusted EPS of $14.72 to $14.80.
Investor Skepticism Persists
Despite the upbeat outlook, traders focused on softer demand in the chip intellectual property (IP) segment and expenses related to the recently closed Ansys acquisition. Design IP revenue dropped to $454.2 million from $482.0 million in the prior year, while adjusted operating margin for that unit declined to 24.4% from 31.2%. In contrast, the Design Automation segment, now bolstered by Ansys, showed stronger results.
CFO Shelagh Glaser described the quarter as setting the stage for “a strong second half,” citing operational execution and financial discipline. The company also raised its targets for operating margin and free cash flow.
AI as a Growth Driver
CEO Sassine Ghazi emphasized that artificial intelligence is scaling semiconductor demand, noting that increasingly complex chips and systems are driving need for advanced design tools. He told Reuters that Synopsys is structuring customer deals around AI-powered software tools, including “agent engineers,” and negotiating separate royalty agreements for its IP business. “You cannot build your own chips without the participation of Synopsys IP,” Ghazi said, highlighting the company’s role with hyperscale cloud providers.
Board Changes and Activist Pressure
In a notable governance move, Synopsys announced that Jesse Cohn, managing partner at Elliott Investment Management, will join the board as an independent director on June 1, expanding the board to 11 seats. Cohn said Synopsys is “essential to the global chip industry” but argued its financials should better reflect the company’s intrinsic value. Reuters reported that Elliott has pushed for Synopsys to close the margin gap with rival Cadence Design Systems (CDNS).
Competitive and Market Context
Cadence shares slipped 0.3% on the day, while the VanEck Semiconductor ETF (SMH) rose 0.9%. Synopsys and Cadence dominate the EDA market, providing software that chipmakers use to design and test semiconductors before manufacturing. Demand for these tools has surged as companies like Nvidia (NVDA), AMD (AMD), and major cloud providers develop more advanced AI chips.
The Ansys acquisition, completed in July 2025, merged Synopsys’ chip-design platform with Ansys’ simulation and analysis capabilities. The combined entity is targeting a $31 billion market opportunity.
Risks and Outlook
Several risks remain. If Design IP continues to underperform, if Ansys synergies take longer to materialize, or if U.S. export control rules shift, the elevated guidance could face headwinds. Synopsys said its forecasts assume no new changes to export-control regulations or additions to the U.S. Entity List.
Investors will look for more clarity at the company’s investor day on September 30, where management is expected to outline long-term targets and strategy. With the stock sliding on Thursday, market participants appear to be demanding concrete evidence rather than broad vision.
