Why Synopsys Stock Looks Undervalued After Its Q2 Gross Margin Hit 83% for the First Time

Key Takeaways for Synopsys Stock

• Synopsys posted Q2 FY2026 revenue of $2.276 billion, up 42% year-over-year, exceeding guidance across revenue, operating margin, and EPS.
• GAAP operating margin contracted to 10% in Q2 FY2026, held down by $1.66 billion in total operating expenses against gross profit of $1.89 billion.
• TIKR’s model values Synopsys at approximately $813 by October 2030, implying around 81% total return from the current price of $448.

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Synopsys Raises Full-Year Guidance as Ansys Integration Drives AI-Led Revenue Surge

Synopsys, Inc. (SNPS) reported Q2 FY2026 revenue of $2.276 billion following its May earnings call, beating its own guidance and raising full-year targets across revenue, operating margin, adjusted EPS, and free cash flow.

The company is the dominant provider of electronic design automation (EDA) software, interface IP, and multiphysics simulation tools, the foundational engineering stack that semiconductor designers and AI infrastructure builders cannot operate without.

Revenue grew 42% year over year, driven by sustained AI-related chip design activity and the first full periods of consolidated Ansys contribution, the multiphysics simulation company Synopsys acquired in mid-fiscal 2025.

CEO Sassine Ghazi described the demand environment in direct terms: “EDA, IP and multiphysics simulation have emerged as essential capabilities in the AI supply chain.”

Within the quarter, the Design Automation segment (which includes Ansys) posted revenue of approximately $1.822 billion, with hardware-assisted verification cited as the key growth engine alongside hyperscaler demand for AI accelerator design support.

The Design IP segment posted revenue of $454 million, down 6% year over year, but management confirmed Q1 was the segment trough, with sequential improvement expected every quarter through fiscal year-end.

Synopsys also announced a cooperation agreement with activist investor Elliott Management and appointed Elliott’s Jesse Cohn to its board, an event management framed as aligned on the same operating margin expansion and value-capture agenda already underway.

Looking ahead, the company raised its full-year revenue guidance to a range centered near $9.665 billion, and lifted its non-GAAP operating margin target to approximately 41% at the midpoint.

Synopsys just raised guidance across every key metric — pull the full earnings data on TIKR for free →

Synopsys’ Gross Margin Holds at 83% While GAAP Operating Margin Absorbs Ansys Integration Costs

Synopsys delivered gross margin of 83% in Q2 FY2026, the strongest gross margin reading across the eight-quarter income statement data provided.

That gross margin strength reflects the underlying quality of the software and IP licensing model: revenue scaled dramatically with Ansys, yet the cost of goods sold barely moved in dollar terms.

Total operating expenses reached $1.66 billion in Q2, absorbing SG&A of $550 million and R&D of $700 million, two cost lines that expanded sharply as Synopsys integrated Ansys’ workforce and go-to-market organization.

The gap between gross margin and GAAP operating margin tells the integration story directly: gross margin ran at 83% while operating margin landed at 10%, a compression of more than 70 percentage points attributable almost entirely to the opex base.

Operating income of $0.24 billion in Q2 marks the lowest absolute level in the eight-quarter window provided, but the directional trend is already turning.

The key operating leverage signal lives in the sequential trajectory: operating margin moved from 5% in Q2 FY2025 to 13% in Q3 FY2025, then compressed again in Q2 FY2026 as integration costs accelerated, but management cited that synergy realization would be approximately halfway complete by fiscal year-end.

Meanwhile, revenue grew 42% year over year while management guided total non-GAAP operating expenses lower at the midpoint, the exact dynamic that precedes operating margin inflection.

Synopsys Leads Cadence on Gross Margin in the Most Recent Quarter, but Cadence Has Held the Advantage for Two Years

Cadence Design Systems (CDNS) posted a gross margin of 85% in the most recent quarter, running approximately 2 percentage points above Synopsys’ 83% across a consistent two-year span.

Synopsys has closed that gap meaningfully: its gross margin reached 84% in Q3 FY2026, the highest reading in the eight-quarter window provided, while Cadence’s most recent figure of 85% represents a slight retreat from its peak of 87%.

Meanwhile, Keysight Technologies (KEYS) operates in a structurally different tier, with gross margin holding in a range centered near 63% across the same period, confirming that the Synopsys-versus-Cadence comparison is the relevant one for software-model gross margin quality.

The Ansys acquisition introduced hardware and channel revenue that carries lower gross margin than pure software, which explains why Synopsys’ blended rate has not yet converged with Cadence’s despite comparable underlying software economics.

Is Synopsys Stock Undervalued? TIKR’s $813 Target Points to 81% Upside If Operating Leverage Lands

TIKR’s model values Synopsys at approximately $813 by October 2030, implying around 81% total return from the current price of $448, or roughly 15% per year.

The credibility of that target depends on one mechanism already visible in the income statement: gross margin holding at 83% while the Ansys opex drag fades as synergies are realized.

Management explicitly guided non-GAAP operating margin to approximately 41% at the full-year midpoint, a step toward the mid-40s target the CEO cited as the long-term destination.

If operating expenses continue declining as a percentage of revenue while gross margin sustains at current levels, operating income will compound at a rate that supports the earnings power TIKR’s target implies.

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Should You Invest in Synopsys, Inc.?

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What Did Synopsys Say About Its IP Business Recovery?

Management confirmed Q1 was the Design IP segment trough, with sequential revenue growth of 12% delivered in Q2, and additional sequential improvement committed for every remaining quarter of fiscal year 2026.