SNPS · Q2 2026 Earnings

Bullish

Synopsys

Reported May 27, 2026

30-second summary

Synopsys beat consensus on both lines (revenue $2.276B vs $2.25B, +1.2%; non-GAAP EPS $3.35 vs $3.16, +6.0%) and raised FY2026 guidance across revenue (+$55M midpoint to $9.665B), non-GAAP EPS (+$0.34 to $14.76), operating margin (+50bps to 41%), and free cash flow (+$100M to ~$2.0B). Design IP delivered the sequential dollar inflection management promised — $454M vs $407M in Q1, +11.5% sequential — even as the segment was still -5.8% YoY, and management explicitly called Q1 the bottom. This is the cleanest print since the Ansys close and the first quarter where the bull case (AI-driven semiconductor demand, accelerating synergies, IP recovery on track) outruns the structural concerns (China, IP YoY still negative).

Headline numbers

EPS

Q2 FY2026

$3.35

+6.0% vs est.

Revenue

Q2 FY2026

$2.28B

+41.8% YoY

+1.2% vs est.

Gross margin

Q2 FY2026

72.4%

Operating margin

Q2 FY2026

5.3%

Key financials

Q2 FY2026

Metric	Q2 FY2026	Q2 FY2025	YoY	Q1 FY2026	QoQ
Revenue	$2.28B	$1.60B	+41.9%	$2.41B	-5.5%
EPS	$3.35	$3.67	-8.7%	$3.77	-11.1%
Gross margin	72.4%	80.2%	-780bps	73.5%	-110bps
Operating margin	5.3%	23.5%	-1820bps	8.4%	-310bps

Guidance

Synopsys raised full-year FY2026 guidance across revenue, EPS, operating margin, and free cash flow, driven by strong Q2 beat and accelerating AI-driven semiconductor demand.

Guidance is issued for both next quarter and the full year. Both may appear below.

Actuals vs prior guidance

Metric	Period	Prior guide	Actual	Δ	Result
Revenue	Q2 FY2026	$2,225 to $2,275 million	$2,276 million	+$1 million above high end	Beat
Non-GAAP EPS	Q2 FY2026	$3.11 to $3.17	$3.35	+$0.18 above high end	Beat

New guidance

Metric	Period	Guide	YoY
Revenue	Q3 FY2026	$2,410 to $2,460 million	+38.5% to +41.4% YoY
Non-GAAP EPS	Q3 FY2026	$3.63 to $3.69	—

Changes to prior guidance

Metric	Period	Prior guide	New guide	Δ	Result
Revenue	FY2026	$9,560 to $9,660 million (midpoint $9,610 million)	$9,625 to $9,705 million (midpoint $9,665 million)	+$55 million at midpoint	Raised
Non-GAAP EPS	FY2026	$14.38 to $14.46 (midpoint $14.42)	$14.72 to $14.80 (midpoint $14.76)	+$0.34 at midpoint	Raised
Non-GAAP Operating Margin	FY2026	40.5% at midpoint	41% at midpoint	+50 basis points	Raised
Operating Cash Flow	FY2026	~$2,200 million	~$2,300 million	+$100 million	Raised
Free Cash Flow	FY2026	~$1,900 million	~$2,000 million	+$100 million	Raised

Segment performance

Q2 FY2026

Segment	Q2 FY2026	Q2 FY2025	YoY
Design Automation	$1.822B	$1.122B	+62.4%
Design IP	$0.454B	$0.482B	-5.8%

Platform metrics

Q2 FY2026

Segment	Q2 FY2026	Q2 FY2025	YoY
Time-based Products Revenue	$945.6M	$828.3M	—
Upfront Products Revenue	$546.3M	$510.7M	—
Maintenance and Service Revenue	$784.1M	$265.3M	—
Deferred Revenue (Current + Non-current)	$2.81B	—	—

Profitability

Q2 FY2026

Segment	Q2 FY2026	Q2 FY2025	YoY
Design Automation Operating Margin	43.3%	40.9%	—
Design IP Operating Margin	24.4%	31.2%	—
Operating Cash Flow (H1 FY2026)	$1.49B	—	—
Free Cash Flow Margin (FY2026 Guidance)	20.7%	—	—

Management tone

Q3 FY2025 IP breakage and headcount cuts → Q4 FY2025 transitional year framing → Q1 FY2026 AI as amplifier with IP "muted" → Q2 FY2026 portfolio-level growth narrative with IP bottomed.

Three quarters ago management was admitting execution failures on the IP roadmap and announcing a 10% headcount reduction. Two quarters ago the framing was "transitional year for IP" with mid-teens growth pushed out to a long-term target. One quarter ago management said IP would be "muted" but acknowledged active royalty conversations with hyperscalers. This quarter the language hardened into a specific inflection claim: "While we continue to expect muted IP growth for fiscal year 2026, we believe the IP segment bottomed in Q1 and has begun its recovery." The IP sequential of +11.5% backs the assertion. The arc from "we got the roadmap wrong" to "Q1 was the bottom" took three quarters and is now anchored to actual sequential dollar improvement, not just narrative.

Last quarter management framed AI as amplifying rather than disrupting Synopsys' strategic advantage — defensive positioning against LLM-competitor narratives. This quarter management escalated to "This is an exceptional moment to be the leading engineering solutions provider. EDA, IP, and multi-physics simulation have emerged as essential capabilities in the AI supply chain." The word "essential" is doing work. Combined with the GPU-accelerated EDA monetization claim — "we're seeing early signs of monetization with GPU-accelerated EDA, a premium capability driving both increased customer value and contract uplift" — the tone has moved from defensive amplification to active pricing power. "Contract uplift" is a quiet but specific phrase indicating Synopsys is taking price in existing customer renewals, not just adding seats.

The Ansys monetization timeline held the FY27 framing from last quarter, but management upgraded the synergy realization language to "accelerating." Last quarter joint solutions were described as on track for technology delivery in 2026 and monetization starting FY27. This quarter management said the company is "expect[ed] to be approximately halfway through our committed cost synergy realization" — a specific milestone. The 50bps operating margin raise is the financial evidence the synergies are flowing through faster than originally modeled.

The hyperscaler IP business model commentary tightened from "active conversations" (Q1) to a committed deliverable: management told Mizuho they expect to "sign a few customers with new agreements by fiscal year-end." That converts the royalty pivot from a directional commitment into a specific FY2026 milestone with a deadline.

Overall confidence reads as a clear step up. Hedging language is reserved for legal disclaimers and the processor IP divestiture close timing — not for the core business trajectory.

Recurring themes management leaned on this quarter:

AI-driven demand acceleration across EDA, IP, and multi-physics simulation3DIC and chiplet architecture adoption driving design complexityMulti-physics fusion and GPU-accelerated EDA as premium monetization vectorsAgentic AI agents gaining customer traction with 20 evaluating customersMargin expansion through operational synergies and ANSYS integrationHyperscaler custom silicon demand driving high-value IP engagements

Risks management surfaced:

Actual results subject to many risks and uncertaintiesProcessor IP solutions sale completion timingMacroeconomic factors affecting customer demandCompetition in EDA and IP marketsExecution risk on ANSYS integration and synergy realization

Q&A highlights

Siti Pananagri · Mizuho

How do the new high-value, customized IP deals with hyperscalers compare to traditional IP deals? What factors drive confidence in sequential acceleration and long-term IP growth?

Management highlighted new business model opportunities with hyperscalers building custom chips (COT model), where Synopsys will capture more value through different monetization beyond traditional use fees or NRE. Committed to signing a few customers with new agreements by fiscal year-end. Q1 represented bottom; Q2 achieved 12% sequential growth with confidence in continued sequential growth through the year.

12% sequential Q2 to Q1 IP growthFew customers expected to sign new business model agreements by end of fiscal yearSequential quarter-over-quarter growth committed for remainder of fiscal yearHyperscaler essential strategy depends on availability of Synopsys IP

Joe Katroki · Will Spargo

Of the $35 million revenue guidance increase, how much was EDA vs. IP? How should agentic AI drive EDA's share of R&D spend higher and what is the contract structure for these engagements?

Strength was broad-based across portfolio driven by AI semiconductor design starts and hyperscaler COT expansion. Current agentic AI engagements are in early exploration phase with customers; monetization model being developed as subscription plus consumption model (subscription for human engineers plus consumption for agents). Management expects more products needed as agents become more pervasive in workflows.

$35 million full-year revenue guidance increase from business performanceStrength across EDA, IP, and SNA portfolioAgentic AI monetization structured as subscription plus consumptionEarly exploration phase with customers on agent workflows

Vivek Arya · BOA Securities

Has the 18A and 14A pipeline benefit shown up in results? When will it impact numbers? What changes should be expected from new board members Elliott Management and Jesse Itzler regarding pricing and operations?

New foundry/process technology nodes always create tailwind for IP business as customers cannot on-ramp without Synopsys IP. Customers evaluate early but payment occurs at production commitment; FY26 guidance does not assume upside from these opportunities. New board members immediately aligned on value creation, essentialness of assets, and opportunity to monetize further and improve operating efficiency.

IP required at all technology nodes and foundries for customer on-rampPayment occurs at production commitment, not evaluation phaseFY26 guidance does not include upside from new foundry engagementsOperating margin raised 300+ basis points this year with opportunity to continue improving

Gary Mobley · Loop Capital

Have you seen resurgence in analog design activity given improved business environment? When will multi-physics fusion products drive the $400 million and $1 billion revenue synergy targets?

Design starts in analog remain muted despite customers reporting revenue strength; excitement limited to physical AI applications (sensors/actuators). Multi-physics fusion monetization will begin in FY27 after expanding from limited partner set; 400 million revenue synergy target (semiconductor multi-physics base) remains on track with higher confidence from early customer feedback.

Analog design starts still fairly muted despite revenue strengthPhysical AI segment showing promise (sensors, actuators)Multi-physics fusion monetization starts FY27$400 million revenue synergy commitment for semiconductor multi-physics base

Andrew Degaspari · BNP Paribas

Is the hyperscaler AI accelerator tape-out the first for a hyperscaler? How meaningful could this be? On organic revenue, what is the implied growth rate excluding divestitures and channel noise?

Not the first hyperscaler tape-out; multiple hyperscalers at different maturity stages bringing own silicon. Every COT uses Synopsys EDA, HAV, IP, and SNA. As COTs become more sophisticated and complex, customers need customized, latest IP competitive with merchant silicon—this is the expanding opportunity and engagement model change point.

Multiple hyperscalers at different maturity stages with custom chips100% of COTs use Synopsys EDA, hardware-assisted verification, IP, and SNAOrganic growth in Q2 approximately 3-4% excluding channel and divestituresCustom IP need increases with COT complexity and sophistication

Answers to last quarter's watch list

Q2 FY2026 revenue execution against the $2.225–2.275B guide — Revenue printed $2.276B, $1M above the high end, with non-GAAP EPS $0.18 above the $3.17 high. Second consecutive beat above the conservatively reset bar, with the FY raise this quarter exceeding the in-quarter beat magnitude. The "Q4 FY2025 reset was sandbagging" thesis is now substantially validated. Status: Resolved positively

Design IP sequential dollar inflection — IP printed $454M, breaking decisively above the $407M floor with +11.5% sequential growth and segment margin expansion to 24.4%. Management called Q1 the bottom and committed to continued sequential growth through year-end. The H2 IP recovery embedded in the FY guide now has Q2 evidence behind it. Status: Resolved positively

First named royalty or value-based IP customer announcement — Management committed to signing "a few customers with new agreements by fiscal year-end" in response to Mizuho's question, but no specific named contract was disclosed this quarter. The timeline tightened from "active conversations" (Q1) to a year-end deliverable, but concrete evidence is still pending. Status: Continue monitoring

FY2026 non-GAAP EPS guide trajectory — The FY EPS raise of $0.34 at the midpoint substantially exceeds the $0.18 Q2 beat above the high end. Combined with raises to revenue ($55M), operating margin (50bps), and free cash flow ($100M), this is a structural upgrade rather than rolled-beat conservatism. The pattern is materially different from Q1's $0.06 raise on a $0.19 beat. Status: Resolved positively

Joint Synopsys-Ansys solutions technology delivery and customer references — Multi-physics fusion was cited as showing "up to 3x faster design closure" in early results, and management framed it as a premium monetization vector. The FY27 monetization timeline held, but synergy realization was upgraded to "accelerating" with the company "halfway through committed cost synergy realization." The $400M revenue synergy target was reaffirmed with higher management confidence. Status: Continue monitoring — technology proof points are emerging, but customer-named design wins were not disclosed.

Backlog trajectory — Backlog ended Q2 at $11B per CFO remarks, down modestly from Q1's $11.3B. CFO characterized the move as normal renewal-timing ebb and flow, consistent with expectations. The resilience anchor remains intact but is now slightly off its peak. Status: Resolved — modest decline, characterized as timing

What to watch into next quarter

Q3 FY2026 revenue execution against the $2.41–2.46B guide (+38.5% to +41.4% YoY off $1.74B baseline) — third consecutive quarter against the conservatively reset bar. Watch whether the beat magnitude expands or compresses; the FY raise pattern needs Q3 to deliver another clear beat to remain credible.

Design IP sequential dollar trajectory — IP printed $454M after two quarters at $407M. Watch whether Q3 prints above $454M to confirm the recovery slope, and whether the YoY comparison turns positive against last year's Q3 IP base.

First named royalty/value-based IP customer contract — management committed to signing "a few customers" with the new business model by end of FY2026 (October 2026), leaving Q3 and Q4 as the disclosure window. Absence of a named contract by Q3 reporting starts to look like delay against management's own deadline.

Non-GAAP operating margin progression toward the 41% FY midpoint — Q3 needs to show margin progression consistent with the 41% FY guide. The 50bps raise this quarter was attributed to Ansys synergies "accelerating"; watch whether Q3 margin commentary attributes ongoing expansion to synergy realization (durable) or one-time items.

Backlog trajectory — Q2 backlog of $11B is down modestly from Q1's $11.3B; CFO framed it as normal renewal timing. Watch the Q3 print for whether backlog rebuilds toward the $11.3–11.4B range or continues to drift, given backlog has been management's primary resilience anchor through the IP transition.

GPU-accelerated EDA and agentic AI monetization disclosure — management cited "early signs of monetization" with "contract uplift" from GPU-accelerated EDA and described an emerging subscription-plus-consumption model for agentic AI. Watch for any specific revenue contribution disclosure or customer count metric (the 20 evaluating customer figure cited this quarter is the early baseline).

China revenue commentary — CFO characterized China as continuing to be approached "pragmatically" with no change to the forecast; Q2 strength was partly an easy compare plus Ansys addition. Watch whether the back-half holds or whether further export-control friction reappears.

September 30 Investor Day — management explicitly teed up the long-term monetization framework (IP business model shift, agentic subscription-plus-consumption) for the September event. This is the single biggest narrative catalyst before Q3 reporting.

Sources

Synopsys Q2 FY2026 press release (Exhibit 99.1), filed with the SEC: https://www.sec.gov/Archives/edgar/data/883241/000119312526241911/d126227dex991.htm
Synopsys Q1 FY2026 Tapebrief (internal prior-quarter reference for guidance baselines and watch list).
Synopsys Q4 FY2025 Tapebrief (internal prior-quarter reference for multi-quarter tone arc).
Synopsys Q3 FY2025 Tapebrief (internal prior-quarter reference for multi-quarter tone arc).
Synopsys Q2 FY2025 Tapebrief (internal prior-quarter reference for multi-quarter tone arc).

Get the next brief, free.

We publish analyst-grade earnings briefs the same day or morning after every call — headline numbers, segment KPIs, Q&A highlights, and tone analysis. Free during beta.

This is not investment advice.