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Synopsis today

$501.05 -7.44 (-1.46%)

(As of 3:33 p.m. ET)

52 week range

$457.52

▼

$629.38

P/E ratio

34.51

Target price

$649.00

Undoubtedly, one of the most important companies in the semiconductor world is Synopsys. NASDAQ: CNPC. The company has established a strong position as one of the key suppliers of semiconductor design software. However, the tech company’s share price has stagnated in 2024, delivering a total return of -1% as of the December 9 close. A significant reason is that the company’s value fell by almost 14% after the market closed on December 4.

Is now the ideal time to invest in Synopsys as it looks to improve its performance in 2025? It’s a fair question, especially given recent changes in Wall Street price targets. Let’s take a quick look at the company’s history, its role in the industry, and whether Synopsys is ready for change.

Synopsys: A Major Player in the Chip Market

Synopsys is the number one electronic design automation (EDA) software provider in the semiconductor industry. Without the latest EDA software, it is impossible to develop the world’s most advanced chips. Chip designers can use older versions of software to design less advanced chips, which is why Chinese chips are less advanced than American ones. The US government has restricted the sale of advanced chip design software to Chinese firms.

Wall Street broadly raises expectations despite double-digit decline in stock prices

Synopsys’ modest increase in earnings in 2024 left the market sluggish. The company improved its earnings slightly in the fourth quarter, but it was its full-year 2025 guidance that sent shares down. The company’s sales forecast was 1% lower than Wall Street expected. This was facilitated by tightening trade restrictions imposed on China, where Synopsys received 15% of its revenue in 2023. However, adjusted earnings were still within the expected range. The extent to which Synopsys viewed the second half of 2025 as better than the first also conflicted with Wall Street’s view.

Interestingly, some Wall Street analysts raised their price targets following the earnings release. Others have lowered or confirmed them. Overall, the six analysts who issued updates had their average price target increase slightly. This is in stark contrast to the nearly 14% drop in share price seen since publication. The average of these six price targets suggests a 28% upside potential for the stock price.

Short-term and long-term arguments for Synopsys

Synopsys continues to play an important role in the future of the semiconductor market. Chip companies continue to engage in the race to innovate to stay ahead or catch up with their competitors. This is true for chips used in cloud AI workloads and for AI accelerator chips in end devices. Synopsys software is important to both of these markets, as well as the automotive and industrial markets. Synopsys continually invests to remain at the forefront of all the markets it can serve. Research and development expenses as a percentage of revenue have exceeded 30% every quarter over the past ten years. Last quarter this figure was 34%.

The company’s commitment to investment is further demonstrated by the $35 billion acquisition of ANSYS. The company hopes to close this transaction in the first half of 2025. The goal of the acquisition is to better optimize all data center components beyond just the silicon on a modern chip. Companies need to optimize networking, storage and cooling in their data centers to deliver the best performance at the best price.

The ANSYS acquisition aims to expand Synopsys’ capabilities in this type of optimization, which optimizes all system components and extends to other areas such as vehicles and robots. The company’s fundamental position at the beginning of the semiconductor and electronics value chain gives it a strong long-term position to take advantage of technological innovation.

The recent decline in Synopsys’ share price looks like a good opportunity to cautiously take advantage of this long-term outlook. The key word is “caution” as Synopsys stock is still not cheap by any means. The forward price-to-earnings (P/E) ratio of 34x is high compared to the S&P 500’s 23x. However, the forward P/E looks more favorable compared to Synopsys’ average over the last three years, which is 38x. Key factors to watch are how Synopsys navigates the growing challenges of doing business in China, as well as the progress of the ANSYS acquisition.

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