Synopsys (SNPS): Exploring Valuation as Earnings Momentum and Forecasts Drive Renewed Investor Interest

If you follow Synopsys (SNPS), you’re probably noticing a bit more buzz lately. The stock has climbed this month, and there is a clear reason: anticipation is building ahead of the company’s upcoming earnings release. With forecasts calling for a 12% jump in earnings per share compared to last year and Synopsys having consistently beaten analyst expectations on both EPS and revenue for the past year, investors are weighing whether another strong quarter is ahead. This pattern of outperformance appears to be drawing attention from investors and industry watchers alike, all considering what it means for the company’s valuation. Put in context, Synopsys has posted gains of 15% over the past year and more than 74% over three years, outpacing many technology peers. Year-to-date, shares are up 26%, with momentum surging again in the past three months. These moves come as the wider chip design and semiconductor software sector faces changing risk perceptions and questions about how much future growth gets priced in, especially as Synopsys continues to exceed expectations. After a year of strong performance, the real question is whether Synopsys is undervalued ahead of earnings or if the market has already factored in its long-term growth potential. Is there still room for upside from here?

Most Popular Narrative: 4% Undervalued

According to community narrative, Synopsys is viewed as undervalued, trading roughly 4% below the consensus fair value. The case for further upside rests on ambitious growth projections in earnings and revenue, with AI and innovation at the center of the bullish outlook.

The launch of HAPS-200 and ZeBu-200 systems, which offer up to double the performance, is expected to strengthen Synopsys' hardware-assisted verification market position. This could drive revenue from semiconductor companies like AMD and NVIDIA. Synopsys' leadership in AI-driven Electronic Design Automation (EDA) tools and innovation in generative and agentic AI capabilities may lead to significant productivity gains for customers, potentially improving Synopsys' revenue growth and market share in the EDA industry.

Want to discover what’s fueling these bold valuation calls? The secret lies in the narrative’s reliance on aggressive growth assumptions for Synopsys’s earnings, margins, and future multiples. Find out which specific catalysts and financial expectations could be driving this premium. It may not be what you expect.

Result: Fair Value of $631.60 (UNDERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, persistent challenges in China and delays in completing the Ansys acquisition could quickly shift the outlook and dampen expected growth.

Find out about the key risks to this Synopsys narrative.

Another View: Caution from the SWS DCF Model

Taking a step back from market multiples, our DCF model suggests Synopsys might be overvalued at today’s prices. This perspective challenges the optimism seen elsewhere. Could the share price be running ahead of the story?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Synopsys for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own Synopsys Narrative

If you think there is more to the story or would like to dig deeper into the numbers, crafting your own narrative is quick and straightforward. Most users complete one in just a few minutes, so why not do it your way?

A great starting point for your Synopsys research is our analysis highlighting 1 key reward and 1 important warning sign that could impact your investment decision.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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