Last Update 17 Oct 25

Integration Of Ansys And AI Trends Will Drive Engineering Excellence

Analysts have reduced their price targets for Synopsys by a range of $20 to $110 per share. They cite persistent headwinds in the IP business, temporary impacts from China export restrictions, and uncertainties around major customer partnerships as key factors influencing the updated outlook.

Analyst Commentary

Analysts provided a mix of cautious and positive perspectives following Synopsys’ recent quarterly results and business updates. After scrutinizing the impact of recent headwinds in its IP business and broader industry shifts, analysis centered on both near-term risks and long-term opportunities for the company.

Bullish Takeaways

Bullish analysts raised Synopsys' valuation outlook in response to the strategic benefits anticipated from the recent Ansys acquisition. They cited new product synergies and positioning in advanced semiconductor design as key growth drivers.
Despite current headwinds, there is optimism that challenges related to China export restrictions and Intel exposure are transient, with potential for recovery and growth beyond fiscal year 2026.
Core business segments outside of IP are viewed as stable and likely to deliver performance that aligns with previous expectations, supporting longer-term targets.
Resource reallocation and operational adjustments in the IP segment are expected to better align Synopsys with industry opportunities. This could potentially accelerate profitability goals in coming years.

Bearish Takeaways

Bearish analysts note continued softness in IP revenues, driven partly by persistent uncertainty with major foundry customers and ongoing China-related demand challenges.
A lack of near-term visibility into key customer roadmaps, especially with Intel, has pressured growth expectations through at least fiscal year 2026.
There are concerns that recent delays and shifting customer strategies could translate to multi-quarter impacts, resulting in muted growth in the IP business for the foreseeable future.
Weaker confidence among Chinese customers and resource adjustments tied to evolving technology needs are expected to weigh on execution and valuation in the near term.

What's in the News

Synopsys unveiled a digital twin racetrack experience for over 400,000 students as part of its exclusive global CFD simulation partnership for STEM Racing. This initiative leverages NVIDIA Omniverse libraries and provides advanced simulation tools for the Aramco STEM Racing World Finals in Singapore (Key Developments).
The company announced expanded collaboration with TSMC, including certification of Ansys simulation and analysis solutions for TSMC's most advanced process nodes. The collaboration also focuses on further development of AI-assisted design flows to accelerate chip innovation in AI, high-speed communications, and advanced computing (Key Developments).
Synopsys introduced new Synopsys.ai Copilot generative AI capabilities for semiconductor design, aiming to accelerate development timelines and improve engineering productivity. Significant workflow efficiency gains have been demonstrated for customers, and integration with Ansys simulation tools further advances GenAI-driven engineering (Key Developments).
The company launched a strategic chip design-to-tapeout education program with GlobalFoundries, providing hands-on access to chip design and manufacturing for universities worldwide. This program supports next-generation workforce development in semiconductor engineering (Key Developments).
Synopsys collaborated with Resonac and 26 global semiconductor supply chain leaders to develop materials and tools for panel-level organic interposers. This initiative advances next-generation semiconductor packaging and production methods (Key Developments).

Valuation Changes

Fair Value Estimate remains unchanged at $556.40 per share, reflecting a stable long-term outlook despite recent headwinds.
Discount Rate has risen slightly from 8.97% to 8.98%, indicating a minor increase in perceived risk.
Revenue Growth projections are virtually unchanged, holding steady at approximately 21.47%.
Net Profit Margin outlook has increased marginally, from 15.75% to 15.77%, suggesting a modest improvement in profitability expectations.
Future P/E Ratio has decreased slightly from 89.94x to 89.85x, signaling minor adjustments in earnings multiples applied to projected results.

Expansion into new markets and integration of advanced simulation and EDA tools strengthen Synopsys' leadership and drive growth in sectors demanding complex product development.
Strategic focus on SaaS, cloud, and high-value integrated IP solutions enhances margin improvement, revenue stability, and operational efficiency amid industry transformation.
Geopolitical tensions, customer concentration risk, costly business transitions, financial strain from acquisitions, and operational challenges threaten Synopsys' growth, profitability, and market adaptability.

Catalysts

About Synopsys

Provides electronic design automation software products used to design and test integrated circuits.What are the underlying business or industry changes driving this perspective?

The acquisition and integration of Ansys positions Synopsys as the global leader in engineering solutions from silicon to systems, dramatically expanding its addressable market into sectors like automotive, industrial, and aerospace. This should drive long-term top-line growth as more sophisticated and complex products (especially AI-powered and smart devices) require robust simulation, analysis, and EDA tools.
The accelerating complexity and proliferation of AI, high-performance computing, and multi-die/chiplet-based architectures are increasing customer demand for Synopsys' advanced design, verification, and simulation solutions, solidifying its role as a mission-critical partner in next-generation chip and system development-supporting both revenue growth and opportunities for higher-margin recurring licensing.
Synopsys is executing a strategic shift by pivoting its IP business resources and R&D roadmap towards higher growth, higher value opportunities (such as advanced interface IP, subsystems, and customizable/chiplet solutions). This focus is expected to improve net margins over time as the company capitalizes on industry trends favoring sophisticated and integrated IP offerings rather than commoditized, standalone products.
The ongoing transformation towards SaaS/cloud-based EDA and Ansys product integration is expected to increase customer stickiness and shift more revenues to subscription and service models, improving revenue visibility and earnings consistency-this directly addresses operational headwinds and is likely underappreciated if the stock is undervalued.
The announced 10% reduction in global headcount and ongoing AI-driven productivity initiatives are expected to optimize the cost structure, accelerate operating synergies from the Ansys deal, and help restore operating margins towards the company's target in the mid-40s, positively impacting earnings growth and free cash flow in the medium to long-term.

Synopsys Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

Analysts are assuming Synopsys's revenue will grow by 24.7% annually over the next 3 years.
Analysts assume that profit margins will increase from 21.7% today to 22.3% in 3 years time.
Analysts expect earnings to reach $2.7 billion (and earnings per share of $12.07) by about September 2028, up from $1.4 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $3.5 billion in earnings, and the most bearish expecting $1.7 billion.
In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 59.3x on those 2028 earnings, down from 82.8x today. This future PE is greater than the current PE for the US Software industry at 36.2x.
Analysts expect the number of shares outstanding to grow by 1.01% per year for the next 3 years.
To value all of this in today's terms, we will use a discount rate of 8.68%, as per the Simply Wall St company report.

Synopsys Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?

Persistent and potentially long-term export restrictions and geopolitical tensions with China have led to customer uncertainty, contract delays, and a weaker-than-expected performance in the Chinese market, putting sustained pressure on Synopsys' revenue and regional growth outlook.
Large investments in IP for a major foundry customer did not yield the anticipated returns due to market-driven factors beyond Synopsys' control, highlighting ongoing revenue concentration risk and the vulnerability of future earnings to key customer decisions or failures.
The transition of the IP segment from discrete licensing to highly customized subsystems and complex delivery models requires significant resource allocation and may structurally increase development costs; if monetization and business model changes lag this trend, long-term net margins and profitability could erode.
The company's integration of Ansys includes increased debt and delayed divestitures, raising financial complexity and interest expense-at the same time, the need for a 10% global headcount reduction and portfolio realignment could slow organic innovation and pose execution risk, further impacting earnings and cash flows in the near to medium term.
Extended muted growth in the IP business, combined with aggressive guidance resets and the inability to fully capture all market opportunities due to resource limitations, points to operational challenges; failure to rapidly scale or adapt amidst rising customization and a shifting competitive landscape could dampen both revenue growth and long-term shareholder returns.

Valuation

How have all the factors above been brought together to estimate a fair value?

The analysts have a consensus price target of $652.736 for Synopsys based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $715.0, and the most bearish reporting a price target of just $550.0.
In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $12.1 billion, earnings will come to $2.7 billion, and it would be trading on a PE ratio of 59.3x, assuming you use a discount rate of 8.7%.
Given the current share price of $604.37, the analyst price target of $652.74 is 7.4% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.

How well do narratives help inform your perspective?

Disclaimer

AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

Integration Of Ansys And AI Trends Will Drive Engineering Excellence