Last Update 06 Feb 26

SNPS: NVIDIA Alliance Will Drive AI Shift For Undervalued IP Business

Analysts have trimmed their outlook on Synopsys, cutting the price target to $520 from $602 as they factor in potential headwinds to the company’s $1.75b intellectual property business. These concerns stem from engineering and fabrication capacity shifting toward AI and high performance data center chips and away from consumer designs.

Analyst Commentary

Analysts are reassessing Synopsys through the lens of how much value its $1.75b intellectual property business can capture as chip design and manufacturing priorities tilt toward AI and high performance data center products and away from consumer categories.

Bullish Takeaways

The $1.75b scale of the IP segment gives Synopsys a meaningful revenue base that is already tied directly to chip design activity, which could support earnings resilience if execution remains disciplined.
As engineering and fabrication capacity migrate toward AI and data center chips, bullish analysts see room for Synopsys to focus on higher value, complex design work that can justify premium pricing and support valuation.
The current reset in expectations, including the lower price target, is viewed by some as baking in a portion of the risk to the IP business, which could reduce the bar for future execution.
Clear identification of headwinds around consumer designs gives management a sharper target for resource allocation and product positioning, which can help investors better track progress against growth milestones.

Bearish Takeaways

Bearish analysts highlight that engineering, materials and fabrication capacity are being reallocated toward AI and high performance data center chips, which may crowd out consumer oriented projects that historically supported Synopsys' IP revenue base.
Limited fabrication infrastructure being bid away by AI focused customers is seen as a direct risk to utilization of Synopsys' IP portfolio, raising questions about growth visibility for the $1.75b business.
The lowered price target to $520 from $602 reflects concerns that these industry shifts could create prolonged headwinds to growth, pressuring both earnings expectations and the multiple investors are willing to pay.
Some analysts flag 2026 as a potentially challenging year, suggesting that the impact of capacity reallocation on Synopsys' execution and growth profile may play out over a multi year period rather than being a short term adjustment.

What's in the News

NVIDIA agreed to invest about US$2.0b in Synopsys through a private placement at US$414.79 per share for a 2.6% stake, alongside an expanded partnership that applies NVIDIA AI and accelerated computing across Synopsys design, simulation and digital twin software, with joint work on agentic AI workflows, digital twins using Omniverse and cloud ready engineering solutions. (Company filings)
Synopsys issued earnings guidance for the quarter ending 31 January 2026 with expected revenue of US$2.365b to US$2.415b and GAAP EPS of US$0.22 to US$0.41, and for fiscal 2026 with expected revenue of US$9.56b to US$9.66b and GAAP EPS of US$2.49 to US$2.90. (Company guidance)
Lightmatter announced a collaboration that integrates Synopsys 224G SerDes and UCIe IP for a 3 nm process into its Passage 3D co packaged optics platform, aiming for low latency and high bandwidth links between AI accelerators and photonic engines while using Synopsys AI powered EDA tools to cut design risk and time to market. (Client announcement)
Edgewater Wireless selected Synopsys as a core vendor for its Wi Fi 8 ready spectrum slicing silicon program, using Synopsys EDA tools across architecture, RTL, verification and sign off to support its plan for higher capacity and lower latency Wi Fi SoCs for dense environments. (Client announcement)
SiMa.ai and Synopsys reported initial output from their collaboration, offering an SoC blueprint and tool flow that combines SiMa.ai ML accelerator tools with Synopsys Platform Architect, Virtualizer Development Kit and ZeBu emulation to support early architecture exploration and software development for AI focused automotive SoCs. (Strategic alliance)

Valuation Changes

Fair Value: Model fair value estimate remains unchanged at US$555.65 per share, indicating no adjustment to the central valuation output.
Discount Rate: Discount rate has risen slightly from 8.82% to 8.85%, implying a modestly higher required return in the refreshed model.
Revenue Growth: Forecast revenue growth assumption is effectively unchanged at 18.84%, reflecting only a minor recalibration.
Net Profit Margin: Expected net profit margin is held essentially flat at 15.45% in the updated inputs.
Future P/E: Assumed future P/E multiple is stable, moving from 91.62x to 91.68x, which keeps the overall valuation framework broadly consistent.

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.

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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.

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