/Synopsys%2C%20Inc_%20magnified%20logo-by%20Casimiro%20PT%20via%20Shutterstock.jpg)
Synopsys, Inc. (SNPS), based in Sunnyvale, California, is a leading provider of electronic design automation (EDA) software with a market capitalization of $86.8 billion. The company is recognized for its cutting-edge solutions in the semiconductor industry, playing a vital role in helping companies design and verify advanced chips and systems.
Shares of SNPS have underperformed the broader market over the last year. The stock has gained 3.5% over this time frame, while the broader S&P 500 Index ($SPX) has rallied nearly 31.3%. In 2024, the stock has gained 9.1%, compared to SPX's 25.5% gains on a YTD basis.
Narrowing the focus, SNPS also underperformed the iShares Expanded Tech-Software Sector ETF (IGV). The exchange-traded fund has gained 39% over the past year and 30.4% on a YTD basis.
Although SNPS’s market performance has been weak, accelerating design cycles and rising chip complexity offer promising growth opportunities for the company. Additionally, the surge in AI-driven demand for high-performance computing across data centers, smartphones, and PCs is fueling the need for more sophisticated chipsets, trends that are expected to boost the company's business volumes.
On Aug. 21, SNPS reported its Q3 earnings results, and its shares rose more than 1% in the following trading session. Its revenue stood at $1.5 billion, up 12.7% year over year. The company’s adjusted EPS of $3.43 was higher than the consensus of $3.28. Management anticipates strong momentum, projecting a 15% year-over-year revenue increase for fiscal 2024, setting a new record.
For the current fiscal year, which ended in October, analysts expect SNPS’ EPS to grow 19.3% to $9.45 on a diluted basis. The company's earnings surprise history is robust. It beat the consensus estimate in all four quarters.
Among the 17 analysts covering SNPS stock, the consensus rating is a “Strong Buy.” That’s based on 14 “Strong Buy” ratings, one “Moderate Buy,” and two “Hold.”
This consensus is more bullish than a month ago, when 13 analysts suggested a “Strong Buy” for the stock.
On November 12, Loop Capital initiated coverage of Synopsys with a “Buy” rating and a $675 price target. The firm highlighted growing chip design activity from system OEMs and hyperscalers, along with China's increasing chip design efforts to bolster its domestic industry. Loop Capital views this fragmentation in chip design as a long-term challenge for traditional semiconductor companies, positioning Synopsys as an ideal investment to hedge against this trend.
The mean price target of $650.19 represents a 15.7% premium to SNPS’ current price levels. The Street-high price target of $694 suggests an upside potential of 23.5%.
