SNPS Stock: Can Synopsys Live up to Lofty Expectations?

Introduction

Synopsys [SNPS] had a choppy 2024, with several drastic corrections leaving the stock down 5.74% for the full year. Despite this, Forbes included SNPS in its list of top artificial intelligence (AI) stocks to buy in 2025.

Synopsys is a US-headquartered tool and service provider for the semiconductor industry. The largest provider of electronic design automation technology in the industry, it boasts big-name clients including Intel [INTC] and Arm [ARM].

What does Forbes see in SNPS stock, and can it live up to expectations?

The Latest SNPS News

Many investors and analysts interested in SNPS stock are keeping a close eye on the firm’s pending $35bn acquisition of engineering simulation software and digital tool developer Ansys [ANSS].

In what would be the sector’s biggest deal since Broadcom [AVGO] acquired VMWare in November 2023, the acquisition could see Synopsys continue to build its authority in the tech space.

SNPS shares dipped following December 4’s earnings announcement for Q4 2024. 

The drop came despite record financial results, including record full-year revenue of $6.13bn and an 11% year-over-year revenue increase for the quarter. Full year results were positive, but fell short of analysts’ estimates.

Synopsys has also benefitted from other collaboration and innovation announcements, including an industry-first Ultra-Ethernet IP and an upcoming partnership with SiMa.ai, which produces high-performance, efficient machine learning system-on-chip solutions. 

Both of these developments, announced in December 2024, position the company well to continue building authority and dominance in the all-important AI space.

Is Synopsys Undervalued?

SNPS had a tricky time in 2024, rising to a 52-week high of 624.80 on July 11, only to drop to a 52-week low of 457.52 on September 6. The stock recovered somewhat to close down 5.74% for the full year.

While the chart may not look pretty as it stands, some analysts — including Forbes’ Catherine Brock — are viewing the dips as a buying opportunity for a stock with growth potential.

That said, it is worth noting that some big-name investors seem to disagree. Cathie Wood has been steadily reducing her position in SNPS; she has sold between 2.4% and 15.2% of her stake in the tech company over the last five quarters.

How is SNPS Faring Against the Competition?

SNPS occupies a precarious spot towards the top of the list of companies underpinning the burgeoning AI industry. 

While it may seem more stable than some of the front-end AI delivery companies, SNPS faces stiff competition from some established players in the tech space, including Adobe [ADBE] and Cadence Design Systems [CDNS]. 

Here is how key figures from these three firms compare:

Source: Yahoo Finance

With projected revenue growth of 10.63% for 2025, and a proven willingness to expand its horizon with acquisition, collaboration and innovation, Synopsys could beat expectations going forward, proving an effective growth play.

SNPS Stock: The Investment Case

Investors would be forgiven for being cautious of too much optimism surrounding a stock that was down on both a 6-month and full-year basis at the end of 2024. Is there really room for SNPS stock to recover?

The Bull Case for SNPS

There is no avoiding the positive coverage from Forbes and other outlets, which have listed SNPS as a stock to watch in the AI and tech spaces over the coming year. 

Nineteen of the 22 analysts tracking the stock on Yahoo Finance rate SNPS a ‘buy’ or ‘strong buy’ as of January 9, with the remaining three rating it a ‘hold’. Such attention from analysts is rooted in the company’s strong business case.

While Synopsys’ annual revenue of $6.13bn stopped short of targets from analysts, it is worth paying attention to the fact this is higher than any previous revenues reported by the company.

Investors looking for a growth play could be attracted by this, as well as punchy FY25 guidance that lists a $6.78bn revenue target.

Exciting, industry-specific acquisitions like Ansys, set to complete in the first half of 2025, paired with the collaborations and projects mentioned above, could make Synopsys look like a forward-thinking growth play.

The acquisition model alone can be costly and effectively stall growth over the medium term, but Synopsys’ collaborative approach may make it a more attractive proposition.

The Bear Case for SNPS

As with many players in the tech space, particularly those involved in manufacturing, Synopsys’ success has much to do with a positive relationship with China.

Continuing geopolitical uncertainty could prove a significant headwind for Synopsys, with potentially catastrophic effects should tensions take a turn for the worse.

Being at the forefront of an incredibly innovative industry offers huge opportunities and is, in large part, why Synopsys is attracting so much investor attention. That said, it carries with it a fair share of risk.

It is very difficult to predict what will happen in the AI space, with potential headwinds including the emergence of new players, established tech companies overtaking challenger firms and the potential for errors or outages to tank a firm’s reputation.

The acquisition of Ansys has generated a lot of positive noise around SNPS stock and could prove to be a real reason for optimism about the stock price, but it is important for investors to remember that the deal is not yet done.

Conclusion

Synopsys is undoubtedly attracting attention as we settle into 2025, and it is easy to see why.

While there are potential headwinds facing the stock, there are also exciting products in the pipeline, and management’s willingness to collaborate with and acquire other key players could prove real drivers for growth.

Either way, SNPS will certainly be a stock to watch over the next twelve months.