Synopsys beats Q2 FY25 estimates, reaffirms outlook amid Ansys merger progress

Synopsys, Inc. (NASDAQ: SNPS), a leading provider of electronic design automation (EDA) software and silicon intellectual property (IP), delivered a robust performance in its fiscal Q2 2025 results, reporting revenue of $1.604 billion. This marked a 10.3% year-on-year growth from $1.455 billion in Q2 FY24 and exceeded the midpoint of company guidance. The strong top-line performance reflected sustained demand for Synopsys’ mission-critical software used in chip design, verification, and simulation as AI-driven design methodologies take center stage in the semiconductor industry.

CEO Sassine Ghazi attributed the quarter’s performance to megatrends such as AI, software-defined systems, and the exponential growth in silicon complexity. These structural shifts are increasing compute intensity and design cost across the semiconductor value chain, reinforcing the relevance of Synopsys’ solutions. In his words, the company is “a trusted partner” helping clients innovate faster and more efficiently—particularly critical as global chipmakers race to develop next-generation processors for AI, automotive, and hyperscale computing.

What Drove the Revenue and Profit Growth?

Synopsys’ revenue for Q2 FY25 was anchored by product segments, which brought in $1.339 billion. This included $828.3 million from time-based licensing and $510.7 million from upfront licensing, highlighting strong deal conversion and customer demand for flexible licensing models. Maintenance and services contributed $265.3 million, slightly below the prior-year period but consistent with expectations following the divestiture of its Software Integrity business.

Gross margin expanded to 80.2%, up from 79.3% a year earlier, fueled by favorable mix and pricing strength in both the EDA and Design IP businesses. Operating income on a GAAP basis reached $376.4 million, compared to $332.1 million in the prior year, even as the company increased R&D spending to $554 million to maintain its leadership in AI-native EDA platforms and silicon verification tools.

Net income from continuing operations rose to $349.2 million, or $2.24 per diluted share on a GAAP basis, up from $299.1 million or $1.92 per share in Q2 FY24. On a non-GAAP basis, which excludes acquisition-related costs, stock compensation, and intangibles amortization, Synopsys posted net income of $572.7 million, or $3.67 per diluted share, marking a 22.7% year-over-year increase.

How Did the Divestiture of the Software Integrity Business Impact the Results?

In September 2024, Synopsys closed the $1.65 billion divestiture of its Software Integrity segment to Clearlake Capital Group and Francisco Partners. The transaction allowed Synopsys to streamline its operations and focus on its two core segments: Design Automation and Design IP. The proceeds from the deal were reinvested into strategic initiatives, including the Ansys merger and debt reduction.

Q2 FY25 included a post-tax loss of $3.9 million from discontinued operations related to final adjustments from the Software Integrity sale. Notably, Synopsys has already received $100 million in deferred payments from the buyers during the six months ended April 30, 2025, reinforcing the liquidity benefit from this transaction.

This strategic move also helped Synopsys clear antitrust and foreign investment regulatory hurdles ahead of its pending $35 billion acquisition of Ansys, positioning it for broader scale in simulation and systems engineering.

What Are the Strategic Implications of the Ansys Merger?

The transformative $35 billion Synopsys-Ansys merger, expected to close in the first half of calendar 2025, remains on track following approval from Ansys shareholders on May 22. The merger combines Synopsys’ expertise in chip design with Ansys’ leadership in multi-physics simulation, unlocking synergies across aerospace, automotive, and industrial design sectors.

Under the agreement, each share of Ansys stock will convert into $197.00 in cash and 0.3450 shares of Synopsys common stock, subject to anti-dilution provisions. Synopsys has already secured $10 billion through senior notes issued in March 2025 to partially fund the cash consideration. These notes are structured across maturities from 2027 to 2055 with blended interest rates ranging from 4.55% to 5.70%, reflecting investor confidence despite rate lock losses of $121.6 million, which are being amortized over the debt’s life.

Analysts believe the combined company will dominate the high-end engineering and simulation stack, making it indispensable in the era of system-on-chip (SoC) design for AI and next-gen compute infrastructure.

How Strong Is Synopsys’ Balance Sheet and Cash Position?

Synopsys ended the quarter with $14.1 billion in cash and cash equivalents, a dramatic increase from $3.9 billion in October 2024, primarily reflecting bond proceeds and deferred cash from divestitures. Total assets rose to $23.76 billion, nearly doubling from six months ago, underscoring its capital strength heading into the Ansys acquisition.

Debt levels also increased to $10.05 billion, largely due to the senior notes and deferred interest rate hedge settlement, but were comfortably covered by cash on hand. The company continues to generate strong operating cash flow—$208 million for the first half of FY25—even while investing heavily in R&D and transaction costs.

What’s the Stock Market Sentiment Toward Synopsys?

Synopsys shares have traded near record highs in recent months, with analysts and institutional investors reacting positively to the company’s Q2 beat and reaffirmation of full-year guidance. Market participants are also encouraged by the strategic clarity provided through the Ansys merger and the monetization of non-core segments.

Buy-side sentiment, particularly among tech-focused funds and quantitative traders, remains constructive. Synopsys’ premium valuation relative to software peers is being justified by its AI-driven roadmap, expanding recurring revenues, and centrality to the semiconductor innovation cycle. The stock has seen steady inflows from both growth and infrastructure-aligned ETFs, a trend expected to continue through the merger completion window.

Why Is Synopsys Gaining Competitive Ground in AI and Chip Design?

Synopsys’ strategy of embedding AI into every layer of the design stack is beginning to pay dividends. Through tools such as DSO.ai and AI-powered verification systems, the company enables chipmakers to accelerate design cycles, reduce power consumption, and improve silicon yield—all critical in today’s complex multi-node chip environments.

Its high-margin Design IP business, which contributed 30% of total revenue, remains a key competitive advantage. With pre-validated IP blocks for high-speed interfaces, security modules, and embedded processors, Synopsys helps clients avoid costly design failures and shorten time-to-market.

This capability is becoming increasingly vital as demand surges for custom silicon in AI data centers, autonomous vehicles, and telecom infrastructure—sectors all contending with compute and energy bottlenecks.

What Do Analysts Expect in the Second Half of FY25?

Synopsys reaffirmed its full-year FY25 revenue and operating margin guidance, citing a healthy demand environment, strong renewals, and visibility across its multi-year backlog of $8.1 billion. Roughly 42% of this backlog is expected to convert to revenue over the next 12 months.

With the Ansys merger expected to close in the coming months, the market will be watching for integration updates, early synergy projections, and regulatory finalization. Analysts also expect Synopsys to continue pursuing bolt-on acquisitions and platform investments in AI, IP security, and design cloud optimization.

Moreover, the gradual rebound in semiconductor capital spending, particularly from foundries and fabless design houses, may further strengthen Synopsys’ pipeline in late FY25.

Key Takeaways for Investors

Synopsys has emerged as one of the most strategically important players in the global semiconductor ecosystem. Its Q2 FY25 results highlight not only financial discipline and strong operating performance, but also its positioning at the intersection of AI, silicon design, and systems engineering. As it advances toward completing the Ansys merger, the company’s transformation from a best-in-class EDA vendor to an end-to-end design simulation powerhouse is well underway.

While macro risks and interest rate sensitivities remain, the secular demand for custom compute, energy efficiency, and AI-driven innovation suggest that Synopsys is uniquely placed for multi-year growth—making it a top-tier candidate for long-term investors focused on next-gen digital infrastructure.