Synopsys Earnings: The Firm Focuses on AI-Fueled Growth and Sells Its Software Integrity Business

We maintained our $480 fair value estimate for narrow-moat Synopsys after the firm posted fiscal second-quarter results with revenue below our expectations, while the non-GAAP operating margin was above our estimate. In the quarter, Synopsys entered into a definitive agreement to sell its software integrity business to Clearlake Capital for over $2.1 billion, which we view as strategically sound. With this, management adjusted its full-year guidance for removing the segment and still expects strong performance throughout the year. In our view, Synopsys is executing well on deploying its artificial intelligence applications across customer workflows, which we think will be the key ingredient in propelling chip design productivity. We continue to view shares, which were flat after-hours, as overvalued.