Synopsys Inc (NASDAQ: SNPS) shares rallied 8.79% to $446.02 in early Thursday trading, reversing a previous decline after the semiconductor software company reported strong third-quarter results and raised its full-year outlook.

The stock movement follows a sharp correction from Wednesday’s extended trading session, where shares had slipped 5.63% to $386.91 despite the company beating consensus estimates for both revenue and earnings. The rebound reflects market reassessment of the company’s execution on AI-driven demand and Ansys integration synergies.

Financial Performance

Synopsys reported quarterly sales of $2.477 billion, up 42.43% year-over-year from $1.739 billion in the prior year’s quarter. This figure exceeded the Street estimate of $2.438 billion by 1.61%.

Adjusted earnings per share came in at $3.91, surpassing the consensus estimate of $3.67 by 6.54%. This represents a 15.34% increase from $3.39 per share in the same period last year.

Non-GAAP operating margin reached 41.6%, reflecting improved operational efficiency. Free cash flow for the quarter was $746 million. The company holds $3.6 billion in cash and short-term investments against approximately $10 billion of debt.

Segment Highlights

The Design Automation segment generated approximately $2 billion in revenue, driven by an 8.5% year-over-year increase in EDA revenue. This growth occurred despite a tough comparison against 16% growth in the prior year quarter. Hardware-assisted verification solutions posted record revenue, with the company adding 12 new and 66 repeat customers in the third quarter.

The Design IP segment returned to growth with revenue of $474 million, up 11% year-over-year, fueled by demand in AI infrastructure. The segment achieved an adjusted operating margin of 26.5%. Key wins included more than 95% of PCIe 7 opportunities and 25 design wins in LPDDR6 year-to-date. Die-to-die IP revenue is on track to double year over year with more than 100 design wins, while Synopsys maintained a 90%+ automotive design win rate for three straight quarters.

Ansys contributed approximately $711 million in revenue for the quarter. One year post-acquisition, the integration is creating new growth opportunities, including the launch of Multiphysics Fusion, which combines Synopsys and Ansys technology for thermal analysis integrated into chip design.

Guidance and Outlook

Synopsys raised its full-year total revenue outlook to $9.715 billion at the midpoint, a range of $9.69 to $9.74 billion. The company expects Ansys to contribute approximately $2.98 billion for the full fiscal year 2026.

Additionally, the company increased its full-year non-GAAP EPS guidance to $15.07 at the midpoint (range: $15.04 to $15.10), a $0.31 increase from prior guidance. Management cited continued AI-driven demand strength and accelerated EDA growth expected in Q4 as primary drivers.

For the fourth quarter, Synopsys expects adjusted EPS of $4.10-$4.16 and revenue of $2.53 billion-$2.58 billion, compared with estimates of $4.00 and $2.552 billion, respectively. Free cash flow guidance was raised by $600 million to approximately $2.6 billion, supported by strong cash collections and reduced CapEx guidance of approximately $225 million.

Analyst Reactions

Several analysts reiterated Buy ratings following the results:

• Rosenblatt Securities: Analyst Blair Abernethy reiterated a Buy rating and price target of $410. Abernethy noted that Synopsys exceeded the high end of its revenue, margin, and earnings guidance ranges. He highlighted that the Ansys acquisition is tracking ahead of cost synergy expectations, with updated revenue guidance reflecting 38% growth.
• Needham: Analyst Charles Shi reiterated a Buy rating and price target of $580. Shi noted that revenue grew 9% sequentially, with EDA up 10% and Ansys growing 9%. He highlighted that semiconductors, aerospace, and industrial sectors were particularly strong for Ansys as industries upgraded digital engineering capabilities.
• Benchmark: Analyst Gary Mobley maintained a Buy rating and price target of $570. Mobley expressed surprise that the stock came under pressure initially, noting it delivered a clean beat-and-raise quarter. He emphasized that results validated "AI is a tailwind to EDA/simulation software" rather than a headwind, citing strong chip design activity and growing interest in agentic AI workflows.

Strategic Context

Sassine Ghazi, president and CEO of Synopsys, attributed the results to AI driving unprecedented complexity and increasing demand for silicon IP and engineering solutions. He noted that one year after the acquisition of Ansys, the company is executing with focus and gaining momentum.

Key strategic developments include:

• Multiphysics Fusion: Launched in Q3, this joint solution offers up to 10x faster design closure and 3x faster runtime for customers like Nvidia, Cisco, and Samsung Foundry. Revenue contributions are expected from 2027.
• Agentic AI: Synopsys demonstrated autonomous design verification agents with Nvidia, achieving up to 50x faster time to validated RTL, 20% better coverage, and up to 40% shorter debug cycles. There are currently more than 30 active customer engagements.
• IP Factory 2: The company is expanding into customized IP subsystems, moving from licensing alone to licensing plus royalties to capture value from custom silicon development by hyperscalers and ASIC vendors.
• USB IP: Lifetime bookings surpassed $2 billion, with tier-one wins advancing to leading-edge nodes.

The third-quarter backlog stood at $10.9 billion.

What the Numbers Show

The divergence between revenue and earnings growth highlights a shift in profit composition. While revenue accelerated at a faster clip (42.43%) than adjusted EPS (15.34%), the company still delivered a double-digit beat on both top-line and bottom-line expectations. This suggests that while volume or pricing drivers fueled substantial topline expansion, margin dynamics or share count adjustments moderated the proportional rise in per-share earnings relative to sales. However, the expansion in non-GAAP operating margin to 41.6% indicates that operational efficiencies and Ansys synergies are beginning to offset the higher revenue base's dilutive effect on margins.

Benchmark analyst Gary Mobley has reiterated a Buy rating on Synopsys (NASDAQ: SNPS), maintaining a price target of $570. The action signals sustained confidence in the semiconductor software company’s growth trajectory.

Analyst Action

Mobley’s decision to maintain the current price target suggests that recent market movements have not altered his valuation framework for the stock. The firm continues to view the shares as undervalued relative to its internal estimates.

The note does not disclose any changes to underlying financial assumptions or revenue forecasts, implying stability in the firm’s outlook for the near term.