Synopsys Earnings: Signs of Strength Against a Tough Environment; Maintaining Fair Value of $382

Narrow-moat Synopsys reported solid second-quarter results that came in slightly below our revenue expectations, however, they were above our non-GAAP EPS expectations. Despite a tough macroenvironment involving a weaker semiconductor market, management is confident in future wins stemming from the firm’s customers prioritizing research and development in chip design for when demand ramps up again. With this in mind, management raised its full-year guidance, as well as guiding to a sequentially stronger third quarter. Synopsys remains confident in long-term demand as the company capitalizes on the secular push toward hyperscale computing, artificial intelligence, and 5G communications. We expect Synopsys’ solutions to continue to gain broad-based adoption as demand for higher complexity, tighter integration, and security in chips increases across industries. We are maintaining our $382 fair value estimate, and with afterhours shares trading around $384, we view shares as fairly valued.