The engineering simulation market is expanding quickly, fueled by the need for faster and more efficient ways to innovate. With products becoming increasingly complex, simulations are now essential for reducing costs, speeding up launches, and cutting warranty expenses. Trends like electrification, autonomy, connectivity, and sustainability are pushing companies to rely more on these tools.

Ansys serves industries such as high-tech, aerospace and defense, automotive, energy, industrial equipment, and materials and chemicals, with major clients including Airbus, TSMC, Samsung, Total, Pfizer, and Philips. The company also collaborates with top CAD vendors like Autodesk and Siemens, EDA software leaders such as Altium, Cadence, and Zuken, and technology giants like AWS, Intel, Nvidia, and AMD to drive cloud integration and high-performance computing adoption.

To maintain its competitive edge, Ansys allocates 20-21% of its revenue - approximately $494 million - toward R&D, focusing on advancing its simulation software. A key area of development is integrating AI-oriented capabilities into its products. In February 2024, the company launched Ansys RI 2024, designed to enhance digital engineering productivity and address challenges posed by increasing engineering complexity. Additionally, Ansys introduced SimAI and AI+ technologies, tailored for 3D physics simulation. These tools leverage deep learning to streamline design analysis and optimization, enabling customers to predict performance across multiple design variations. By improving development efficiency and cutting costs, these innovations not only enhance customer adoption but also position Ansys to drive higher revenues.

The advancement of AI products offers a transformative opportunity for Ansys, particularly in the automotive sector. Its work with Porsche Motorsports focuses on fine-tuning electric vehicle performance, while its ADAS technology enhances sensor precision, directly improving road safety and accelerating the adoption of autonomous driving.

Ansys has been acquired by Synopsys, with the deal expected to close in 2025, where leaders in semiconductor design and simulation to address the rising need for integrating electronics and physics, enhanced by AI. This partnership strengthens Synopsys’ Silicon-to-Systems strategy, expanding into areas like core electronic design automation (EDA), automotive and aerospace while leveraging AI and cloud innovations. The deal increases Synopsys’ TAM by 1.5x to $28 billion, with 11% CAGR, and is expected to generate $400 million in cost synergies within three years and over $1 billion in long-term revenue synergies.

Over the past decade, the company has more than doubled its revenue, growing from $941 million in 2014 to $2.27 billion in 2023 (CAGR of +9.2%), split between software licenses ($1.088 billion) and maintenance and services ($1.181 billion). Ansys has a diversified product portfolio and a strong geographic reach, with 53.4% of its revenue generated internationally and 46.6% domestically. Additionally, 73.9% of its revenue comes from direct sales, while 26.1% is indirect.

During the same period, EBITDA increased by 110%, reaching $995 million in 2023 (43.86% EBITDA margin), with a free cash flow of $691 million for the year. Net income and operating profit also saw significant growth, rising from $254 million to $500 million and $452 million to $966 million, respectively. Analysts predict these figures will reach $838 million and $1.399 billion by 2026. Capital expenditures have remained stable, at $26 million in 2014 compared to $25 million in 2023, though they are expected to rise to $53 million by 2026.

In terms of profitability, the company’s ROA improved from 9.27% a decade ago to 10.98% in 2023, while its ROE increased from 11.7% to 15% over the same period. Despite its strong financial performance, the company faces a high P/E ratio, requiring continuous innovation and execution to avoid valuation corrections. The stock is currently valued at 51.90x forward earnings for 2024, compared to a 10-year average of 47.7x.

The growing commercial, political, and economic tensions between the U.S. and China raise concerns for the company, particularly regarding U.S. Department of Commerce export controls and restrictions on selling its software to certain Chinese firms. It will be interesting to observe how the company, now part of Synopsys, navigates these challenges in the context of shifting U.S. policies under the Trump administration.

Additionally, the group faces intense competition in the tech and semiconductor sectors, where constant innovation is crucial to staying ahead of rivals offering similar simulation technologies. The AI boom presents a double-edged sword: it could either solidify the company’s position as a market leader, increasing its market share, revenues, and margins, or expose its inability to innovate at the pace of competitors, potentially driving customers to alternative solutions—an outcome that could be devastating for the company's future.

Estimated share of artificial intelligence (AI) semiconductors across the total semiconductor market worldwide from 2017 to 2025

Ansys has significant potential to continue making an impact in the industry through innovation and strategic partnerships. Its merger with Synopsys could greatly benefit the company if successfully integrated, strengthening relationships with existing customers and offering cutting-edge solutions to drive growth. However, the current premium valuation, regulatory challenges in China, and the upcoming political administration could pose challenges. Given these factors, adopting a wait-and-see approach over the next one to two quarters could be a prudent strategy.