SNPS Stock is Down 10%: Time to Buy the Synopsys Dip?

Synopsys [SNPS] is a Sunnyvale, California-based chip design software maker, founded in 1986. 

The company’s business can be split into two segments: design automation — the larger segment of which covers custom silicon design software — and design IP. 

This spotlight will look at how Synopsys plans to accelerate growth with the impending acquisition of Ansys [ANSS], a maker of solutions for firms as diverse as aerospace manufacturers and tennis racket makers. 

It will also discuss Synopsys’ recent financial performance, and how SNPS stock is benefiting from the artificial intelligence (AI) boom. 

Synopsys is a major player in electronic design automation (EDA) software: tools that help chip companies develop more complex chips. It could be argued that no AI application would be possible without EDA. 

Synopsys had a 19% share of the EDA market in 2024, according to Morningstar.

Synopsys–Ansys Deal on Track

On March 5, the UK’s competition watchdog gave Synopsys the green light to acquire Ansys for $35bn, having previously been concerned that it could reduce innovation and lead to higher prices. 

Synopsys agreed to buy the software maker in early 2024, but the deal has faced regulatory hurdles. It was cleared by the European Commission in January after Synopsys agreed to divest some of its software offerings to alleviate the EU regulator’s concerns about market dominance. 

Though the US Federal Trade Commission has yet to give its approval, Synopsys is hopeful that it will close by the end of June. 

The acquisition would create an “engineering-software juggernaut” with strong financial metrics, according to a note from Bloomberg Intelligence analysts published back in October. 

SNPS Stock in the Dumps

Given Synopsys’ vital role in AI infrastructure, it is unsurprising that SNPS stock got caught up in the DeepSeek selloff at the end of January. The share price is down 10.90% to $432.46 since the start of the year through March 12 and down 23.50% in the past 12 months. 

SNPS stock fell to a 52-week low of $427.30 on March 10 as the broader US market wobbled amid fears that President Donald Trump’s tariffs could spark a trade war. 

How Does SNPS Fare Against Competitors?

Despite the weak share performance, Synopsys offered some upbeat guidance when it reported its Q1 2025 earnings on February 26.

Revenue for the three months to January 31 came in at $1.455bn, the higher end of the $1.435bn–1.465bn guidance range provided in the Q4 2024 earnings report in December, albeit down from $1.51bn reported in the year-ago quarter. 

Gross profit for Q1 declined to $1.18bn from $1.23bn a year earlier, while operating income fell from $352.6m to $251.8m.

Synopsys expects Q2 revenue to be between $1.585bn and $1.615bn, up from $1.455bn a year ago, as demand for software to design AI chips continues to grow. 

Following the earnings report, CEO Sassine Ghazi told Reuters that more customers are requiring chips for inference, which is where trained models use data to make predictions or draw conclusions. 

“It’s a good thing, because the more inference you have, the more chips you’re going to have, and the more types of chips you’re going to have, and we benefit from it,” 

For comparison, Cadence Design Systems [CDNS], Synopsys’ main rival in the EDA market, reported a revenue jump of 26.86% to $1.36bn for the three months to December 31. Keysight Technologies [KEYS], which also offers EDA solutions, reported a 3.17% rise in revenue to $1.30bn for the three months to January 31. 

Here’s how the three stocks’ fundamentals compare. 

Source: Yahoo Finance

SNPS stock has the most consistent revenue growth over the next couple of years, but could be considered overvalued given its high P/E ratio. The average for software stocks is 37.89.

SNPS: The Investment Case

The Bull Case for Synopsys 

AI should continue to fuel demand for EDA software. Stifel analyst Ruben Roy expects Synopsys will see double-digit growth in 2025 as “AI-related tools are introduced and monetized”. The company should provide more details on its AI strategy at its annual SNUG conference being held March 19–20, Roy added.

Synopsys’ management has also moved to take advantage of favorable market conditions and sold $10bn in investment-grade bonds last week to help fund the Ansys acquisition, as first reported by Bloomberg. The bond sale has the backing of major financial institutions, including Bank of America and JPMorgan. 

The Bear Case for Synopsys

Like many companies in the AI space, the biggest headwind Synopsys is facing right now is China.

The country made up 12% of revenue in Q1, down from 16% in 2024. Ghazi said on the earnings call in February that the “trend of deceleration” was the “cumulative effect of restrictions” — the US implemented new controls blocking the export of advanced chips to China on December 2 — and “the slowing local economy and the money that’s flowing into start-ups and the overall economy.”

On top of this, the Ansys deal has yet to receive the green light from China’s State Administration for Market Regulation. 

Conclusion 

Synopsys is likely to continue to play a key role in the AI ecosystem as companies look for advanced chips to train large language models and power AI applications, including chatbots. While its ambitious takeover of Ansys may move forward, there are regulatory and growth concerns coming out of China.