Synopsys, Inc. (SNPS) | Investment Case

1. Company Snapshot

1.a. Company Description

Synopsys, Inc.provides electronic design automation software products used to design and test integrated circuits.The company offers Fusion Design Platform that provides digital design implementation solutions; Verification Continuum Platform that provides virtual prototyping, static and formal verification, simulation, emulation, field programmable gate array (FPGA)-based prototyping, and debug solutions; and FPGA design products that are programmed to perform specific functions.

It also provides intellectual property (IP) solutions for USB, PCI Express, DDR, Ethernet, SATA, MIPI, HDMI, and Bluetooth low energy applications; analog IP, including data converters and audio codecs; and system-on-chip (SoC) infrastructure IP, datapath and building block IP, and verification IP products, as well as mathematical and floating-point components, and Arm AMBA interconnect fabric and peripherals.In addition, the company offers logic libraries and embedded memories; configurable processor cores and application-specific instruction-set processor tools for embedded applications; IP subsystems for audio, sensor, and data fusion functionality; and security IP solutions.Further, it provides Platform Architect solutions for SoC architecture analysis and optimization; virtual prototyping solutions; and HAPS FPGA-based prototyping systems, as well as a series of tools used in the design of optical systems and photonic devices.

Additionally, the company offers security testing, managed services, programs and professional services, and training that enable its customers to detect and remediate security vulnerabilities, and defects in the software development lifecycle, as well as manufacturing solutions.It serves electronics, financial services, automotive, medicine, energy, and industrial areas.The company was incorporated in 1986 and is headquartered in Mountain View, California.

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1.b. Last Insights on SNPS

Synopsys' recent performance was driven by its strong growth phase, leveraging AI-powered EDA and the Ansys acquisition to drive innovation in chip design and verification. The company's robust financial performance, consistent revenue growth, and robust earnings outlook support a bullish stance, with explosive growth projected into 2026. Synopsys boasts superior profitability and is undervalued based on its P/S ratio, with forward revenue growth expected to accelerate. The company's acquisition of Ansys has enabled it to expand its offerings and enhance its competitive position in the market. Additionally, Synopsys has been gaining traction with institutional investors, with notable firms such as Stanley Laman Group Ltd. and APS Management Group Inc. increasing their stakes in the company.

1.c. Company Highlights

Last Price	457.89
Change Percentage	-1.55%
Open	460.69
Previous Close	465.12
Market Cap ( Millions)	87603
Volume	1888908
Year High	651.73
Year Low	365.74
M A 50	470.99
M A 200	497.49

FCF Yield	1.54%
Dividend Yield	0.00%
ROE	7.09%
Debt / Equity	50.46%
Net Debt / EBIDTA	456.24%
Price To Book	2.59
Price Earnings Ratio	55.05
Price To FCF	64.93
Price To sales	12.42
EV / EBITDA	39.61

2. Synopsys Posts Record Revenue, Guides for Strong Growth in FY '26

Synopsys reported record annual revenue of $7.05 billion for FY '25, with fourth-quarter revenue coming in at $2.25 billion, in line with guidance. EPS for the quarter was slightly ahead of guidance. The company's design automation segment achieved a record year, with 12 competitive wins in hardware-assisted verification. The Design IP segment revenue was $1.75 billion, down 8% due to a challenging second half. Total expenses exiting Q4 were $1.43 billion, guided to $1.41 billion in Q1, with an average quarterly expense run rate of $1.43 billion for the year.

Publication Date: Dec -20

                                    📋 Highlights
                                    Record Revenue and Backlog:
                                                Synopsys achieved $7.05B annual revenue and $11.4B backlog in 2025.
2026 Guidance:
                                                Revenue midpoint of $9.61B and non-GAAP operating margin of 40.5% (up 320 bps vs. 2025).
Design IP Challenges:
                                                Segment revenue fell 8% to $1.75B in Q4 2025 due to a weak second half.
Divestiture Headwind:
                                                Optical Solutions and PowerArtist divestitures to cost $110M in 2026.
ANSYS Growth Potential:
                                                ANSYS acquisition expected to deliver double-digit revenue growth from semiconductors and industrial markets.

                                

Guidance and Outlook

Synopsys guides for FY 2026 revenue of $9.61 billion at the midpoint, factoring in ANSYS, completed divestitures, and pragmatism around China. Non-GAAP operating margin is expected to be 40.5% at the midpoint, up approximately 320 basis points versus 2025. The company expects to drive sustainable growth and margin expansion through innovation and disciplined execution. GAAP earnings are guided to be $2.49 to $2.90 per share, and non-GAAP earnings are guided to be $14.32 to $14.40 per share.

Segment Performance

The EDA growth rate is lowered due to slower chip design momentum in China, with some share shift dynamics happening. However, the company expects joint solutions with ANSYS to drive revenue growth back to target. The ANSYS business is expected to see double-digit growth, driven by the semiconductor market and industrial applications. The IP business sees a muted growth outlook for 2026, with headwinds in China and execution on custom IP blocks.

Valuation and Estimates

Analysts estimate next year's revenue growth at 36.7%. The actual EPS came out at $2.9, relative to estimates at $2.78. With a P/E Ratio of 54.49 and an EV/EBITDA of 65.63, the market seems to be pricing in significant growth expectations. The company's ROE is 7.09%, and ROIC is 1.97%, indicating a relatively efficient use of capital. The Net Debt / EBITDA ratio is 7.67, which may raise concerns about the company's leverage.

Operational Highlights

The company's backlog is $11.4 billion, showing strength in bookings and commitment from customers. They are focused on execution and delivery. Adjusted EBIT margins are nearing the mid-40 goal, and cash flow performance is expected to improve, with one-time items settling out of the model. Management acknowledges that the EDA/IP industry has shown growth deceleration over the last couple of years, despite AI's strong growth, and is exploring new avenues, such as royalties for IP.

3. NewsRoom

Synopsys: Powering The AI Engine

Feb -02

Source: seekingalpha.com

4 Software Stocks Set to Pull Off a Beat This Earnings Season

Feb -02

Source: zacks.com

Synopsys (SNPS) Falls More Steeply Than Broader Market: What Investors Need to Know

Jan -29

Source: zacks.com

Bank of New York Mellon Corp Acquires 166,985 Shares of Synopsys, Inc. $SNPS

Jan -29

Source: defenseworld.net

Exane Asset Management Acquires New Holdings in Synopsys, Inc. $SNPS

Jan -28

Source: defenseworld.net

Synopsys Announces Earnings Release Date for First Quarter Fiscal Year 2026

Jan -27

Source: prnewswire.com

Why Trump's South Korea Tariffs Add Fuel To Memory-Chip Crunch

Jan -27

Source: feeds.benzinga.com

Lightmatter Collaborates with Synopsys to Integrate Advanced Interface IP with Its Passage Co-Packaged Optics Platform

Jan -27

Source: businesswire.com

4. Business Breakdown

4.a. Revenues by Country

4.b. Revenues by Segment

5. Expected revenues mid-term growth (8.20%)

6. Segments

Design Automation

Expected Growth: 7.3%

Growing demand for electronic design automation software, increasing complexity in chip design, and adoption of cloud-based platforms drive Synopsys' Design Automation segment growth.

Design Ip

Expected Growth: 10.2%

Increasing demand for SoC design and artificial intelligence applications drives growth, with Synopsys' silicon-proven IP cores offering a competitive advantage in the market.

7. Detailed Products

Zeus

A scalable and flexible verification platform for system-on-chip (SoC) design

VCS

A high-performance simulation and verification solution for ASIC and FPGA designs

PrimeTime

A sign-off quality static timing analysis (STA) solution for IC design

Coverity

A static application security testing (SAST) solution for identifying security vulnerabilities in software

Black Duck

An open-source security and license compliance management solution

Defensics

A fuzz testing and vulnerability research solution for identifying security vulnerabilities in software and hardware

Polyspace

A formal methods-based verification solution for ensuring the correctness and reliability of software

Catapult

A high-level synthesis (HLS) solution for designing and verifying digital ICs

HAPS

A high-performance prototyping solution for verifying and validating SoC designs

8. Synopsys, Inc.'s Porter Forces

Forces Ranking

Threat Of Substitutes

The threat of substitutes for Synopsys, Inc. is medium due to the presence of alternative software solutions in the market, but the company's strong brand reputation and customer loyalty mitigate this threat.

Bargaining Power Of Customers

The bargaining power of customers is low for Synopsys, Inc. due to the company's strong market position and the lack of alternative suppliers for its specialized software solutions.

Bargaining Power Of Suppliers

The bargaining power of suppliers is medium for Synopsys, Inc. due to the company's dependence on a few key suppliers for its software development and maintenance.

Threat Of New Entrants

The threat of new entrants is high for Synopsys, Inc. due to the relatively low barriers to entry in the software industry and the presence of venture capital funding for startups.

Intensity Of Rivalry

The intensity of rivalry is high for Synopsys, Inc. due to the presence of established competitors in the market and the need for continuous innovation to stay ahead in the industry.

9. SWOT Analysis

10. Capital Structure

10.a. Balance Sheet

10.b. Weighted Average Cost of capital

	Value
Debt Weight	10.06%
Debt Cost	3.95%
Equity Weight	89.94%
Equity Cost	9.27%
WACC	8.74%
Leverage	11.19%

11. Quality Control: Synopsys, Inc. passed 9 out of 9 key points

Strong Liquidity

Low Debt

Strong Interest Coverage

Healthy Cash Flow

Operating Efficiency

Strong Return On Equity

Consistent Revenue Growth

Consistent Operating Cash Flow Growth

Margin Improvement

12.a Historical Valuation

12.b Price/Earnings Ratio

12.c Margin Valuation

12.d Peers Valuation

Peers Group Analysis

Microsoft

A-Score: 6.1/10

Value: 0.8

Growth: 7.9

Quality: 8.5

Yield: 2.0

Momentum: 8.0

Volatility: 9.3

1-Year Total Return ->

CrowdStrike

A-Score: 5.1/10

Value: 4.0

Growth: 8.8

Quality: 3.7

Yield: 0.0

Momentum: 9.0

Volatility: 5.0

1-Year Total Return ->

Oracle

A-Score: 4.8/10

Value: 2.7

Growth: 6.8

Quality: 6.0

Yield: 2.0

Momentum: 8.5

Volatility: 3.0

1-Year Total Return ->

Fortinet

A-Score: 4.5/10

Value: 1.0

Growth: 9.1

Quality: 7.9

Yield: 0.0

Momentum: 4.0

Volatility: 5.0

1-Year Total Return ->

Adobe

A-Score: 4.5/10

Value: 3.0

Growth: 5.4

Quality: 9.2

Yield: 0.0

Momentum: 2.0

Volatility: 7.3

1-Year Total Return ->

Synopsys

A-Score: 2.2/10

Value: 0.9

Growth: 0.8

Quality: 6.4

Yield: 0.0

Momentum: 2.0

Volatility: 3.3

1-Year Total Return ->

Peers Metrics

12.e Scoring ^Insights

12.f DCF ^BETA

Parameters

Short Term Growth

22.17%

Short term Time

10.0

Long-Term Growth

2.00%

WACC

8.74%

Synopsys, Inc. - US8716071076

1. Company Snapshot

1.a. Company Description

1.b. Last Insights on SNPS

1.c. Company Highlights

Better Quality

Expensive

Higher Growth

Earnings Beats

Revenues Beats

Strong Momentum

Average Growth

Weak Momentum

Stable Momentum

Medium Volatility

Average Quality

Earnings Miss

Revenues Miss

2. Synopsys Posts Record Revenue, Guides for Strong Growth in FY '26

Guidance and Outlook

Segment Performance

Valuation and Estimates

Operational Highlights

3. NewsRoom

4. Business Breakdown

4.a. Revenues by Country

4.b. Revenues by Segment

5. Expected revenues mid-term growth (8.20%)

6. Segments

Design Automation

Expected Growth: 7.3%

Design Ip

Expected Growth: 10.2%

7. Detailed Products

Zeus

VCS

PrimeTime

Coverity

Black Duck

Defensics

Polyspace

Catapult

HAPS

8. Synopsys, Inc.'s Porter Forces

Forces Ranking

Threat Of Substitutes

Bargaining Power Of Customers

Bargaining Power Of Suppliers

Threat Of New Entrants

Intensity Of Rivalry

9. SWOT Analysis

Strength

Weaknesses

Opportunities

Threats

10. Capital Structure

10.a. Balance Sheet

10.b. Weighted Average Cost of capital

11. Quality Control: Synopsys, Inc. passed 9 out of 9 key points

12.a Historical Valuation

12.b Price/Earnings Ratio

12.c Margin Valuation

12.d Peers Valuation

Peers Group Analysis

Peers Metrics

12.e Scoring Insights

12.f DCF BETA

Parameters

Short Term Growth

Short term Time

Long-Term Growth

WACC

Target Price

457.89$

Current Price

457.89$

Potential

-0.00%

Expected Cash-Flows

12.e Scoring ^Insights

12.f DCF ^BETA