Synopsys (SNPS) Margin Compression In Q1 2026 Challenges High Growth Narratives

Synopsys (SNPS) has kicked off Q1 2026 with total revenue of US$2.4b and basic EPS of US$0.34, setting the stage against a trailing twelve month picture that includes US$8.0b in revenue and basic EPS of US$6.40. Over recent quarters, the company has reported revenue of US$1.46b in Q1 2025, US$1.60b in Q2, US$1.74b in Q3 and US$2.25b in Q4, while quarterly basic EPS over that period ranged from US$1.91 to US$2.42. With trailing net profit margins now at 13.8% and influenced by a large one off gain, this set of results puts the focus squarely on how durable Synopsys' profitability is.

See our full analysis for Synopsys.

With the headline numbers on the table, the next step is to see how these results line up with the widely followed growth and risk narratives around Synopsys and where those stories might need updating.

See what the community is saying about Synopsys

Margins Reset After One Off Boost

• Trailing net profit margin sits at 13.8% on US$8.0b of revenue and is affected by a US$478.4m one off gain in the last 12 months.
• Consensus narrative points to higher margin potential over time, yet the recent margin level and reliance on a large one off gain highlight a gap between the long term margin story and the current 13.8% outcome.
  • The consensus view talks about SaaS, cloud and higher value IP pushing margins higher, while the reported 13.8% margin is below the prior 21.4% figure mentioned in the analysis.
  • Investors weighing that consensus view against the US$478.4m non recurring gain may treat part of the trailing margin as lower quality and look more closely at underlying profitability.

Revenue Growth Versus Earnings Dip

• Q1 2026 revenue of US$2.4b compares with Q1 2025 revenue of US$1.46b, while net income excluding extra items in Q1 2026 is US$65.0m versus US$295.7m a year earlier.
• Supporters of the bullish narrative emphasize expansion into new markets and higher value EDA and simulation tools, but the contrast between higher recent revenue and the lower Q1 2026 net income challenges the idea that growth is currently flowing cleanly through to earnings.
  • The consensus narrative highlights expansion into sectors like automotive and industrial, yet Q1 2026 net income excluding extra items of US$65.0m is well below the US$448.7m reported in Q4 2025.
  • Forecasts in the analysis suggest earnings could grow around 20.2% per year, so the step down in quarterly net income gives investors a reason to separate near term execution from those longer term expectations.

Over the past year, bulls have leaned heavily on the growth story, so if you want to see how they connect these numbers to a long term case, it is worth reading their full argument here: 🐂 Synopsys Bull Case

Premium Valuation And Growth Trade Off

• At a share price of US$426, Synopsys trades on a P/E of 73.8x compared with a peer average of 40x and a US Software industry average of 26x, while a DCF fair value of about US$460.80 and an analyst price target of US$545.72 both sit above the current price.
• Skeptics focus on the high P/E and recent margin compression, and those concerns line up with the data even though analysts in the dataset still see upside from US$426 to their US$545.72 target.
  • The trailing 13.8% margin and the one off US$478.4m gain mean the earnings used in that 73.8x P/E are not entirely from recurring operations, which can make the multiple look richer on a clean basis.
  • At the same time, revenue growth of about 11.9% per year and the earnings growth forecast of around 20.2% per year are the factors analysts use to justify a higher target than today, so readers can decide whether that trade off fits their own expectations.

If you are weighing that premium P/E against the growth story and want to see how skeptics frame the risks, the full cautious case is a helpful counterweight: 🐻 Synopsys Bear Case

Next Steps

To see how these results tie into long-term growth, risks, and valuation, check out the full range of community narratives for Synopsys on Simply Wall St. Add the company to your watchlist or portfolio so you'll be alerted when the story evolves.

If this mix of strong growth expectations, premium pricing and margin questions leaves you on the fence, it is worth checking the underlying numbers for yourself and forming a clear view, starting with 3 key rewards and 3 important warning signs.

Explore Alternatives

Synopsys combines a premium 73.8x P/E with a 13.8% margin that is supported by a large one off gain and weaker recent underlying earnings.

If that mix of rich pricing and fragile profitability makes you cautious, it could be worth checking out 54 high quality undervalued stocks that pair stronger fundamentals with more grounded expectations.

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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