Synopsys Earnings: Robust Demand and Growth Runway Fueled by AI Prowess

Narrow-moat Synopsys reported strong fiscal fourth-quarter results, with revenue and profitability exceeding our expectations. We are impressed by the company's advancement of its artificial intelligence toolkit, which we think will ultimately propel the productivity of complex chip design. Management provided a solid fiscal 2024 outlook, including strong first-quarter guidance. Despite macroeconomic headwinds, we are confident of long-term demand as Synopsys capitalizes on secular trends toward hyperscale computing, AI, and 5G communications. We are raising our fair value estimate to $480 per share from $420. We view the shares, which were up around 2% after hours, as overvalued.