In the days before software, if engineers wanted to know if an idea worked, they would first have to build a three-dimensional physical model.
But this method had one major flaws: not everything scales linearly. What worked fine on a smaller scale may turn into a disaster when made larger.
Thankfully, today, we have simulation software for engineers that allows them to correctly assess scaling, among other things. In fact, this is an $8 billion market globally.
Yet, the largest engineering simulation company in the world remains relatively unknown by investors. I know it because it is located not far from where I live, in western Pennsylvania…
Good Times for Ansys
The company is Ansys (ANSS), which was founded in 1970. Here’s how it describes its mission on its website: “For more than 50 years, Ansys software has enabled innovators across industries to push boundaries by using the predictive power of simulation. From sustainable transportation to advanced semiconductors, from satellite systems to life-saving medical devices, the next great leaps in human advancement will be powered by Ansys.”
Ansys’s leading cloud-based software product is sold to a wide range of industrial companies, including aerospace, automotive, energy, and semiconductors businesses. Customers license Ansys’s software on fixed contracts, providing annuity-like income for the company. Customers that require more complex computations, use more products, or need to add more users pay Ansys more.
Along with economic growth, the main macro indicator for whether Ansys is doing well or not is total research & development (R&D) spending across industrialized economies. That means the relatively recent passage the Inflation Reduction Act and the Chips and Science Act were great news for Ansys. Add in the reshoring of industries from China and the Russian invasion of Ukraine, and you have substantial increases in spending on the energy, military, and semiconductor industries in a bid to increase national security.
Ansys is already feeling the effects. In the second quarter, the company’s biggest revenue contributors by industry were semiconductors at 31%, aerospace at 23%, automotive at 17% and energy at 9%. The rest was split between…
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