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SNPS Plunges 21% in a Year: Should You Hold or Fold the Stock?
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Synopsys (SNPS - Free Report) shares plunged 20.8% over the past year, underperforming the Zacks Computer - Software industry, Zacks Computer and Technology sector and the S&P 500 index’s growth of 3.5%, 19.2% and 18.2%, respectively.
As Synopsys is trading near its 52-week low of $454.05, investors are left wondering: Is it time to buy the dip or wait for further clarity?
1-Year Price Return Performance
Image Source: Zacks Investment Research
Recent Earnings Results Fail to Revive SNPS Stock
Synopsys stock stalled after the first quarter of fiscal 2025 results as the company posted mixed results with earnings and revenues declining year over year by 10.4% and 3.7%, respectively, while both surpassing the Zacks Consensus Estimate.
SNPS’ largest segments, Electronic Design Automation (EDA) and Design IP, which contributed a total of 97.2% of the total revenues, didn’t perform well. While the EDA revenues improved marginally by 0.8% year over year to $978.7 million, the Design IP revenues declined 17.2% to $435.1 million.
For fiscal 2025, Synopsys kept the same guidance that it released in the previous quarter. For fiscal 2025, SNPS still expects revenues between $6.745 billion and $6.805 billion. Non-GAAP earnings are still expected in the range of $14.88-$14.96. These factors failed to inspire investor confidence, resulting in no post-earnings recovery in the stock price.
Synopsys’ earnings beat the Zacks Consensus Estimate thrice in the trailing four quarters and missed once, the average surprise being 3.7%.
Find the latest EPS estimates and surprises on Zacks Earnings Calendar.
Synopsys’ underperformance can be attributed to several factors. SNPS’ IP and hardware revenues tend to be uneven, as revenue recognition is dependent on the customer’s product adoption schedule. SNPS’ revenue recognition is also challenged by capacity constraints for deploying hardware in data centers, causing uneven financial performance.
Synopsys’ other concern has been the sluggish recovery in markets like mobile, PC and automotive, which are vital for Synopsys’ customer base. These segments are experiencing slower-than-expected growth as consumer demand remains muted amid economic uncertainties. Specifically, the mobile and PC markets are recovering at a slower pace due to sluggish economic growth, protracted inflationary conditions and still-high interest rates, which are affecting consumer spending power.
SNPS' Growth is Hampered by US-China Tensions
For Synopsys, revenues from its business in China have accounted for more than 15% of its total revenues in fiscal 2024, 2023 and 2022. Its significant exposure to China presents both opportunities and risks. While China remains a critical market for semiconductor companies, regulatory challenges and trade tensions between the United States and China continue to weigh on investor sentiment.
The recent escalation in these tensions, particularly the ever-increasing export controls and entity list restrictions toward China by the U.S. Department of Commerce adds a layer of uncertainty for Synopsys.
Synopsys’ Premium Valuation: A Concern for Investors
Despite a 20.8% plunge in share price over the past year, Synopsys currently trades at a forward 12-month price-to-sales (P/S) multiple of 9.98x, significantly above the industry average of 8.31x. While this premium highlights the company’s leadership and growth prospects, it also raises concerns about limited near-term upside, especially in a volatile market environment.
Forward 12-Month P/S Valuation
Image Source: Zacks Investment Research
However, despite these challenges, not everything is gloom and doom for the company.
Strategic Partnerships Aid Synopsys’ Growth
Despite the challenges, SNPS continues to gain from its strong strategic partnerships and technological leadership. Its partnership with industry giants like Taiwan Semiconductor Manufacturing (TSM - Free Report) , NVIDIA (NVDA - Free Report) , Intel and Arm Holdings (ARM - Free Report) has enabled Synopsys to maintain its position at the forefront of chip design innovation.
Partnerships with these industry leaders are not just about technology sharing, they allow Synopsys to co-develop solutions that are critical in advancing AI, high-performance computing (HPC) and next-generation semiconductor designs.
For instance, Synopsys and Taiwan Semiconductor Manufacturing’s joint efforts on Multi-Die test chip tape-outs are instrumental in driving efficiencies and reducing time-to-market for complex semiconductor designs. NVIDIA has been using Synopsys software for GPU design. Synopsys and Arm collaborated to roll out integrated solutions for next-generation chiplets, SoCs and systems in AI, HPC, automotive, mobile and IoT sectors.
SNPS Deepens Its AI Capabilities to Boost Growth
Synopsys continues to expand its technological leadership through strategic initiatives. The company's investment in AI-powered design automation tools has strengthened its portfolio, catering to industries undergoing rapid transformation.
The company has achieved numerous milestones in artificial intelligence throughout 2024. To expand its footprint in the automotive space, SNPS partnered with SiMa.ai to develop solutions that help automotive companies quickly develop silicon and software for AI-powered features in next-generation vehicles.
In 2024, Synopsys’ AI-driven digital design and analog design flows achieved certification on Samsung Foundry's SF2 process. SNPS partnered with TSM to develop cutting-edge EDA and IP solutions for TSMC's advanced process and 3DFabric technologies. Additionally, Synopsys released AI products, including its first complete PCIe 7.0 IP solution, Polaris Software Integrity Platform, Synopsys ZeBu EP2 and HAPS-100 12.
In the beginning of 2025, Synopsys announced the expansion of its hardware-assisted verification (HAV) portfolio with the introduction of the HAPS-200 prototyping and ZeBu-200 emulation systems that can be used for handling large AI computational data sets.
SNPS’ expansion in the AI space gives Synopsys fresh opportunities to drive top-line expansion. The Zacks Consensus Estimate for fiscal 2025 and 2026 depicts continued growth for the company. The consensus mark for fiscal 2025 and 2026 revenues indicate an 8% and 12.4% growth, respectively, while EPS estimates suggest a 12.7% and 15.9% increase.
Conclusion: Hold Synopsys Stock for Now
Synopsys’ 20.8% decline over the past twelve months highlights the stock’s near-term challenges, including valuation pressures and macroeconomic uncertainties. However, its strong fundamentals and leadership in driving technological innovation underscore its potential for long-term success.
For existing investors, maintaining a hold position allows participation in Synopsys’ growth story while navigating short-term volatility. For new investors, waiting for a better entry point during a market pullback could offer a more attractive opportunity to invest in this industry leader.
Image: Shutterstock
SNPS Plunges 21% in a Year: Should You Hold or Fold the Stock?
Synopsys (SNPS - Free Report) shares plunged 20.8% over the past year, underperforming the Zacks Computer - Software industry, Zacks Computer and Technology sector and the S&P 500 index’s growth of 3.5%, 19.2% and 18.2%, respectively.
As Synopsys is trading near its 52-week low of $454.05, investors are left wondering: Is it time to buy the dip or wait for further clarity?
1-Year Price Return Performance
Image Source: Zacks Investment Research
Recent Earnings Results Fail to Revive SNPS Stock
Synopsys stock stalled after the first quarter of fiscal 2025 results as the company posted mixed results with earnings and revenues declining year over year by 10.4% and 3.7%, respectively, while both surpassing the Zacks Consensus Estimate.
SNPS’ largest segments, Electronic Design Automation (EDA) and Design IP, which contributed a total of 97.2% of the total revenues, didn’t perform well. While the EDA revenues improved marginally by 0.8% year over year to $978.7 million, the Design IP revenues declined 17.2% to $435.1 million.
For fiscal 2025, Synopsys kept the same guidance that it released in the previous quarter. For fiscal 2025, SNPS still expects revenues between $6.745 billion and $6.805 billion. Non-GAAP earnings are still expected in the range of $14.88-$14.96. These factors failed to inspire investor confidence, resulting in no post-earnings recovery in the stock price.
Synopsys’ earnings beat the Zacks Consensus Estimate thrice in the trailing four quarters and missed once, the average surprise being 3.7%.
Find the latest EPS estimates and surprises on Zacks Earnings Calendar.
Synopsys, Inc. Price, Consensus and EPS Surprise
Synopsys, Inc. price-consensus-eps-surprise-chart | Synopsys, Inc. Quote
Notable Risks Constraining Synopsys' Performance
Synopsys’ underperformance can be attributed to several factors. SNPS’ IP and hardware revenues tend to be uneven, as revenue recognition is dependent on the customer’s product adoption schedule. SNPS’ revenue recognition is also challenged by capacity constraints for deploying hardware in data centers, causing uneven financial performance.
Synopsys’ other concern has been the sluggish recovery in markets like mobile, PC and automotive, which are vital for Synopsys’ customer base. These segments are experiencing slower-than-expected growth as consumer demand remains muted amid economic uncertainties. Specifically, the mobile and PC markets are recovering at a slower pace due to sluggish economic growth, protracted inflationary conditions and still-high interest rates, which are affecting consumer spending power.
SNPS' Growth is Hampered by US-China Tensions
For Synopsys, revenues from its business in China have accounted for more than 15% of its total revenues in fiscal 2024, 2023 and 2022. Its significant exposure to China presents both opportunities and risks. While China remains a critical market for semiconductor companies, regulatory challenges and trade tensions between the United States and China continue to weigh on investor sentiment.
The recent escalation in these tensions, particularly the ever-increasing export controls and entity list restrictions toward China by the U.S. Department of Commerce adds a layer of uncertainty for Synopsys.
Synopsys’ Premium Valuation: A Concern for Investors
Despite a 20.8% plunge in share price over the past year, Synopsys currently trades at a forward 12-month price-to-sales (P/S) multiple of 9.98x, significantly above the industry average of 8.31x. While this premium highlights the company’s leadership and growth prospects, it also raises concerns about limited near-term upside, especially in a volatile market environment.
Forward 12-Month P/S Valuation
Image Source: Zacks Investment Research
However, despite these challenges, not everything is gloom and doom for the company.
Strategic Partnerships Aid Synopsys’ Growth
Despite the challenges, SNPS continues to gain from its strong strategic partnerships and technological leadership. Its partnership with industry giants like Taiwan Semiconductor Manufacturing (TSM - Free Report) , NVIDIA (NVDA - Free Report) , Intel and Arm Holdings (ARM - Free Report) has enabled Synopsys to maintain its position at the forefront of chip design innovation.
Partnerships with these industry leaders are not just about technology sharing, they allow Synopsys to co-develop solutions that are critical in advancing AI, high-performance computing (HPC) and next-generation semiconductor designs.
For instance, Synopsys and Taiwan Semiconductor Manufacturing’s joint efforts on Multi-Die test chip tape-outs are instrumental in driving efficiencies and reducing time-to-market for complex semiconductor designs. NVIDIA has been using Synopsys software for GPU design. Synopsys and Arm collaborated to roll out integrated solutions for next-generation chiplets, SoCs and systems in AI, HPC, automotive, mobile and IoT sectors.
SNPS Deepens Its AI Capabilities to Boost Growth
Synopsys continues to expand its technological leadership through strategic initiatives. The company's investment in AI-powered design automation tools has strengthened its portfolio, catering to industries undergoing rapid transformation.
The company has achieved numerous milestones in artificial intelligence throughout 2024. To expand its footprint in the automotive space, SNPS partnered with SiMa.ai to develop solutions that help automotive companies quickly develop silicon and software for AI-powered features in next-generation vehicles.
In 2024, Synopsys’ AI-driven digital design and analog design flows achieved certification on Samsung Foundry's SF2 process. SNPS partnered with TSM to develop cutting-edge EDA and IP solutions for TSMC's advanced process and 3DFabric technologies. Additionally, Synopsys released AI products, including its first complete PCIe 7.0 IP solution, Polaris Software Integrity Platform, Synopsys ZeBu EP2 and HAPS-100 12.
In the beginning of 2025, Synopsys announced the expansion of its hardware-assisted verification (HAV) portfolio with the introduction of the HAPS-200 prototyping and ZeBu-200 emulation systems that can be used for handling large AI computational data sets.
SNPS’ expansion in the AI space gives Synopsys fresh opportunities to drive top-line expansion. The Zacks Consensus Estimate for fiscal 2025 and 2026 depicts continued growth for the company. The consensus mark for fiscal 2025 and 2026 revenues indicate an 8% and 12.4% growth, respectively, while EPS estimates suggest a 12.7% and 15.9% increase.
Conclusion: Hold Synopsys Stock for Now
Synopsys’ 20.8% decline over the past twelve months highlights the stock’s near-term challenges, including valuation pressures and macroeconomic uncertainties. However, its strong fundamentals and leadership in driving technological innovation underscore its potential for long-term success.
For existing investors, maintaining a hold position allows participation in Synopsys’ growth story while navigating short-term volatility. For new investors, waiting for a better entry point during a market pullback could offer a more attractive opportunity to invest in this industry leader.
Currently, Synopsys carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.