The wave of AI has ignited demand for chip design! Synopsys, Inc. (SNPS.US) Q3 performance exceeded expectations and raised its full-year guidance.

Despite semiconductor automation design (EDA) giant Synopsys, Inc. (SNPS.US) reporting better-than-expected third-quarter results and raising its full-year guidance, the stock price still fell after the earnings announcement, suggesting that it may not have met investors' higher expectations. Synopsys, Inc. saw its stock drop by over 6% in after-hours trading on Wednesday, although the decline had narrowed to less than 1% by the time of this report. The earnings report revealed that Synopsys, Inc.'s third-quarter revenue increased by 42% year-on-year to $2.48 billion, surpassing the average analyst expectation of $2.44 billion; adjusted net income was $750 million, up 37% from $550 million in the same period last year; adjusted earnings per share were $3.91, better than the average analyst estimate of $3.67. Synopsys, Inc. is benefiting from the trillion-dollar expansion of artificial intelligence (AI) infrastructure, which has driven demand for complex AI chips and advanced design tools. As chip manufacturers ramp up investments in more advanced chip systems, the demand for AI-related chip design has surged. At the same time, tech giants including Amazon.com, Inc. and Alphabet Inc. Class C are accelerating their in-house chip development efforts. By business segment, revenue from design automation reached $2.003 billion, a year-on-year increase of 53%; revenue from design IP was $474 million, returning to year-on-year growth with an 11% increase. The design automation business includes advanced silicon chip design, verification products and services, Ansys products, system integration products and services, digital, custom, and field-programmable gate array (FPGA) integrated circuit design software, verification software and hardware products, manufacturing software products, and other businesses; the design IP business includes logic libraries, embedded memory, wired interface IP, memory interface IP, and security IP. Synopsys, Inc. Chief Financial Officer Shelagh Glaser stated, "The foundation of this growth is the strong design environment we are witnessing, and the main driver of this growth is AI." "Customers are building increasingly complex chips with shorter development cycles. Our tools help them simplify this complexity." The company expects further sequential growth in its design IP business in the fourth quarter. Synopsys, Inc. President and CEO Sassine Ghazi noted, "AI is driving unprecedented complexity and increasing the demand for silicon IP and engineering solutions, which are critical for delivering the next generation of AI computing, infrastructure, and physical AI systems. One year after completing the transformative acquisition of Ansys, we are focused on executing our strategy to further consolidate our leadership position and continue to build growth momentum." Looking ahead, Synopsys, Inc. expects fourth-quarter revenue to be between $2.53 billion and $2.58 billion, with a midpoint of $2.555 billion, aligning closely with analyst averages; it anticipates adjusted earnings per share to be between $4.10 and $4.16, with a midpoint of $4.13, exceeding the average analyst expectation of $4.00. Additionally, thanks to the sustained strong demand driven by AI, Synopsys, Inc. has raised its full-year guidance. The company now projects full-year revenue to be between $9.69 billion and $9.74 billion (previous guidance was $9.625 billion to $9.705 billion), better than the average analyst expectation of $9.68 billion; it has also raised its full-year adjusted earnings per share guidance to $15.04 to $15.10 (previously $14.72 to $14.80), surpassing the average analyst expectation of $14.78.