Synopsys (SNPS) AI Stock Analysis

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Synopsys

(NASDAQ:SNPS)

63Neutral

Synopsys exhibits strong financial health and promising growth in AI and HPC sectors, yet technical indicators reflect a bearish trend, and valuation metrics suggest overvaluation risks. The earnings call provided mixed insights with robust product launches but highlighted regional challenges, especially in China.

Positive Factors

AI Integration

By integrating agentic AI into Synopsys’ tools, design engineers can anticipate a more streamlined and efficient EDA workflow.

Investment Opportunity

Synopsys is viewed as an attractive, yet underappreciated investment opportunity, and the Outperform rating is reiterated.

Product Portfolio

Synopsys has a strong AI-enabled product portfolio that enhances EDA products, providing significant performance boosts across various metrics.

Negative Factors

Acquisition Uncertainty

There is uncertainty surrounding Synopsys's proposed acquisition of Ansys, which is pending approval.

China Market Challenges

China revenue declined -33% sequentially as management toned down FY25 China expectations to below corporate average growth due to cumulative effect of US-China restrictions and slowing China economy.

China Revenue

Management downticked the China outlook and now sees China revenue percentage falling.

Synopsys (SNPS) vs. S&P 500 (SPY)

Market Cap

$60.01B

Dividend YieldN/A

Average Volume (3M)1.47M

Price to Earnings (P/E)28.7

Beta (1Y)1.61

Revenue Growth-1.19%

EPS Growth48.33%

CountryUS

Employees20,000

SectorTechnology

Sector Strength40

IndustrySoftware - Infrastructure

Share Statistics

EPS (TTM)13.52

Shares Outstanding154,620,070

10 Day Avg. Volume1,223,803

30 Day Avg. Volume1,465,075

Financial Highlights & Ratios

PEG Ratio0.59

Price to Book (P/B)N/A

Price to Sales (P/S)11.42

Price to Cash Flow (P/CF)-257.10

P/FCF Ratio0.00

Enterprise Value/Market CapN/A

Enterprise Value/RevenueN/A

Enterprise Value/Gross ProfitN/A

Enterprise Value/EbitdaN/A

Forecast

1Y Price Target

$620.30

Price Target Upside59.82% Upside

Rating ConsensusStrong Buy

Number of Analyst Covering11

Synopsys Business Overview & Revenue Model

Company DescriptionSynopsys, Inc. is a leading global supplier of electronic design automation (EDA) software and services. Operating primarily in the technology and semiconductor sectors, Synopsys provides solutions for designing and verifying advanced silicon chips, as well as for developing and testing software that runs on these chips. The company's core products include EDA tools, IP products, and software integrity solutions which aid in the efficient creation and management of complex integrated circuits and systems-on-chips (SoCs).

How the Company Makes MoneySynopsys generates revenue primarily through the sale of software licenses, maintenance and service contracts, and consulting services. Its electronic design automation tools and intellectual property products are licensed to semiconductor companies, enabling them to design and verify chip designs more efficiently. Synopsys also earns from its software integrity solutions, which help organizations improve the security and quality of their software code. The company's revenue model includes a combination of time-based licenses, which provide recurring revenue, and upfront perpetual licenses. Additionally, significant partnerships with leading technology companies and continued investment in research and development contribute to Synopsys' earnings by driving innovation and expanding its product offerings.

Synopsys Financial Statement Overview

Summary

Synopsys demonstrates a robust financial performance with a consistent increase in revenue, strong profitability margins, and a solid balance sheet with low leverage. Cash flow is healthy, though there's room for improvement in conversion ratios.

Income Statement

Very Positive

Synopsys demonstrates a robust financial performance with a consistent increase in revenue over the years. The TTM (Trailing-Twelve-Months) gross profit margin is strong at 78.87%, indicating efficient cost management. The net profit margin for the TTM stands at an impressive 34.77%, reflecting superior profitability. However, the recent TTM net income is slightly lower compared to the previous annual period, suggesting a need for attention to sustained profitability growth.

Balance Sheet

Very Positive

The company's balance sheet is solid with a low debt-to-equity ratio of 0.07 in the TTM, indicating a conservative use of leverage. The equity ratio is strong at 71.36%, showing a stable financial structure with ample equity backing. Return on equity (ROE) is excellent at 22.69% in the TTM, showcasing effective management and a high return on shareholder investments.

Cash Flow

Very Positive

Cash flow is healthy with a TTM free cash flow of $1.30 billion, showing the company's ability to generate substantial cash. The operating cash flow to net income ratio is 0.68, which is adequate, though there's room for improvement. Free cash flow growth has been consistent, supporting operational stability and flexibility in funding future growth opportunities.

TTM	Dec 2024	Dec 2023	Dec 2022	Dec 2021	Dec 2020
Breakdown
Income Statement		Total Revenue
6.07B	6.13B	5.84B	5.08B	4.20B	3.69B
	Gross Profit
4.79B	4.88B	4.62B	4.02B	3.34B	2.89B
	EBIT
1.26B	1.36B	1.27B	1.16B	734.79M	620.14M
	EBITDA
1.45B	1.36B	1.65B	1.44B	1.10B	857.40M
	Net Income Common Stockholders
2.11B	2.26B	1.23B	984.59M	757.52M	664.35M
Balance Sheet		Cash, Cash Equivalents and Short-Term Investments
938.56M	4.05B	1.59B	1.57B	1.58B	1.24B
	Total Assets
3.29B	13.07B	10.33B	9.42B	8.75B	8.03B
	Total Debt
0.00	684.46M	687.80M	656.37M	666.77M	663.49M
	Net Debt
-775.41M	-3.21B	-751.11M	-761.24M	-766.07M	-572.16M
	Total Liabilities
1.19B	4.05B	4.15B	3.86B	3.45B	3.12B
	Stockholders Equity
2.10B	8.99B	6.15B	5.52B	5.30B	4.91B
Cash Flow		Free Cash Flow
1.30B	1.28B	1.51B	1.60B	1.40B	832.55M
	Operating Cash Flow
1.43B	1.41B	1.70B	1.74B	1.49B	991.31M
	Investing Cash Flow
1.26B	1.22B	-482.10M	-572.62M	-549.03M	-360.42M
	Financing Cash Flow
-135.99M	-181.30M	-1.20B	-1.12B	-748.75M	-140.61M

Synopsys Technical Analysis

Technical Analysis Sentiment

Negative

Last Price388.13

Price Trends

50DMA

474.30

Negative

100DMA

498.39

Negative

200DMA

517.22

Negative

Market Momentum

MACD

-9.92

Negative

RSI

39.48

Neutral

STOCH

16.18

Positive

Evaluating momentum and price trends is crucial in stock analysis to make informed investment decisions. For SNPS, the sentiment is Negative. The current price of 388.13 is below the 20-day moving average (MA) of 438.82, below the 50-day MA of 474.30, and below the 200-day MA of 517.22, indicating a bearish trend. The MACD of -9.92 indicates Negative momentum. The RSI at 39.48 is Neutral, neither overbought nor oversold. The STOCH value of 16.18 is Positive, not indicating any strong overbought or oversold conditions. Overall, these indicators collectively point to a Negative sentiment for SNPS.

Synopsys Risk Analysis

Synopsys disclosed 29 risk factors in its most recent earnings report. Synopsys reported the most risks in the “Tech & Innovation” category.

Finance & Corporate - Financial and accounting risks. Risks related to the execution of corporate activity and strategy

Latest Risks Added 0 New Risks

Synopsys Peers Comparison

Overall Rating

UnderperformOutperform

Sector (57)

Financial Indicators

Name	Overall Rating	Market Cap	P/E Ratio	ROE	Dividend Yield	Revenue Growth	EPS Growth
PANW	78 Outperform	$101.68B	86.76	23.38%	―	13.86%	-46.44%
ZS	73 Outperform	$27.03B	―	-1.21%	―	27.77%	89.39%
CRWD	73 Outperform	$79.72B	721.64	-0.69%	―	29.39%	-119.62%
FTNT	70 Outperform	$65.14B	37.48	338.74%	―	12.27%	54.69%
CYBR	67 Neutral	$15.16B	1,777.39	-5.91%	―	33.10%	-20.31%
SNPS	63 Neutral	$60.01B	28.70	16.27%	―	-1.19%	48.33%
Sector *	57 Neutral	$18.54B	9.84	-14.38%	2.71%	5.07%	-23.65%

* Technology Sector Average

Performance Comparison

SNPS

Synopsys

388.13

-188.23

-32.66%

FTNT

Fortinet

84.71

16.32

23.86%

PANW

Palo Alto Networks

153.57

19.28

14.36%

CYBR

CyberArk Software

306.46

47.19

18.20%

Zscaler

174.67

-9.04

-4.92%

CRWD

CrowdStrike Holdings

321.63

7.90

2.52%

Synopsys Earnings Call Summary

Earnings Call Date: Feb 26, 2025 | % Change Since: -17.50% | Next Earnings Date: May 21, 2025

Earnings Call Sentiment Neutral

The earnings call presented a mix of positive achievements and underlying challenges. Synopsys demonstrated strong performance in key markets like AI and HPC, launched successful new products, and maintained robust EDA software growth. However, the company faced revenue declines in specific segments and challenges in the China market, highlighting areas of concern.

Highlights

Exceeding Revenue and EPS Guidance

Synopsys exceeded the midpoint of its Q1 revenue guidance and delivered non-GAAP EPS above its guidance range, despite challenges such as one less work week in the quarter.

Robust AI and HPC Markets

AI and HPC markets remained strong, driving significant design activity and growth opportunities for Synopsys.

Successful Product Launches

Synopsys launched new HAPS 200 prototyping systems and ZeBu 200 emulation systems with up to 2x better performance, strengthening its leadership in hardware-assisted verification.

Strong EDA Software Growth

EDA software segment saw strong design activity at advanced nodes, with significant projects and tape-outs at 2-nanometer technology.

AI-Driven Innovations

Synopsys.ai adoption continues to grow, with notable productivity improvements and competitive displacements in key accounts.

Lowlights

Revenue Decline in Certain Segments

Overall Q1 revenue was down 4% year-over-year, and non-GAAP EPS was down 10% due to fewer work weeks.

Challenges in China

Synopsys faced headwinds in China, with expectations of China growth below the corporate average due to economic deceleration and restrictions.

IP Revenue Fluctuations

Design IP revenue was down 17% year-over-year, highlighting fluctuations and challenges in this segment.

Company Guidance

During the Synopsys earnings call for the first quarter of fiscal year 2025, the company provided detailed guidance and results, showcasing strong performance despite challenges in certain markets. Synopsys exceeded the midpoint of its Q1 revenue guidance with a total revenue of $1.46 billion, although this represented a 4% year-over-year decline due to one less work week. The non-GAAP EPS also surpassed expectations, despite a 10% decline from the previous year. The company reaffirmed its fiscal year 2025 targets, projecting revenue between $6.745 billion and $6.05 billion, with a non-GAAP operating margin of 40% and non-GAAP EPS between $14.88 and $14.96. Q2 targets include revenue between $1.585 billion and $1.615 billion, with a non-GAAP EPS of $3.37 to $3.42. Synopsys highlighted robust growth in AI and HPC sectors, while facing headwinds in industrial, automotive, and consumer electronics markets, particularly in China. The pending acquisition of ANSYS, expected to close in the first half of 2025, is anticipated to bolster AI-powered design solutions. The company emphasized significant advancements in hardware-assisted verification and EDA software, noting strong demand for their new HAPS 200 and ZeBu 200 systems, and AI-driven capabilities enhancing productivity, with potential for a paradigm shift in design workflows through agent AI.

Glossary

OutperformA stock rated as "Outperform" is expected to perform better than the overall market or a specific benchmark over the near-to-medium term. This rating suggests that the stock is likely to deliver higher returns compared to the average returns of other stocks in the same sector or market index. Investors might consider this stock a good buying opportunity.

NeutralA stock rated as "Neutral" is expected to perform in line with the overall market or a specific benchmark. This rating indicates that the stock is neither particularly attractive nor unattractive for investment. Investors may consider holding onto the stock, as it is not expected to either significantly outperform or underperform the market.

UnderperformA stock rated as "Underperform" is expected to perform worse than the overall market or a specific benchmark over the near-to-medium term. This rating suggests that the stock may deliver lower returns compared to the average returns of other stocks in the same sector or market index. Investors might consider selling the stock or avoiding it as an investment.

Disclaimer

This AI Analyst Stock Report is automatically generated by our AI systems using advanced algorithms and publicly available financial, technical, and market data. While the information provided aims to be accurate and insightful, it is intended for informational purposes only and should not be considered financial advice. Any content created by an AI (Artificial Intelligence) system may contain inaccuracies and/or contain errors. Investing in stocks carries inherent risks, and past performance is not indicative of future results. This report does not account for your personal financial circumstances, objectives, or risk tolerance. Always conduct your own research or consult with a qualified financial advisor before making investment decisions. The analysis and recommendations provided are based on historical and current data and may not fully reflect future market conditions or unexpected developments. Neither the creators of this report nor its affiliated entities guarantee the accuracy, completeness, or reliability of the information presented. Use this report at your own discretion and risk.