Bear of the Day: Synopsys (SNPS)

Synopsys (SNPS) is one among two leading companies in the field of Electronic Design Automation (EDA).

Its partner in the "duopoly" is Cadence Design Systems (CDNS). And both have traded at high valuations thanks to their essential work in helping semiconductor companies like NVIDIA (NVDA) design their chips.

But that lofty valuation came back to bite Synopsys two weeks ago when the company delivered a "miss-and-lower" quarter instead of the "beat-and-raise" music investors want to hear.

The company reported non-GAAP earnings of $3.39 per share for their Q3 of the 2025 fiscal year (ends October), missing the Zacks Consensus Estimate of $3.84 and the guided range of $3.82-$3.87. The bottom line missed consensus by nearly 12% and decreased 1.2% on a year-over-year basis.

Synopsys Q3 revenues were still able to rise 14% year over year to $1.74 billion, but they also missed the Zacks Consensus Estimate of $1.768 billion. The top line was primarily driven by an increase in revenues of Time-Based Product and Upfront Product businesses.

SNPS shares dropped nearly 36% on September 10, from $600 to $380. They have since bounced back above $500 as analysts re-work their models and try not to price-in disaster -- and since the duopoly for semi design is still in strong demand.

But the Guide...

For the current Q4 of FY'25, Synopsys expects earnings per share of $2.78 at the midpoint, a 40% haircut from the analyst consensus before the bad news.

This bite out of the FY25 EPS outlook, takes the full year down 15% from $15.09 to $12.83, representing an annual profit drop of 2.8%.

SNPS management mainly flagged China export restrictions and bumpy sales to Intel (INTC) as their primary fault lines. Here was a good summary of the situation from MarketBeat...

However, there is reason to believe that the company’s business in China can recover. Synopsys completed its acquisition of Ansys only after the Chinese government approved it. This shows that China wants to work with, rather than against, Synopsys, giving the firm a good chance to continue growing its revenue there. The company’s business with Intel is more concerning, considering the persistently weak performance of its foundry. However, Synopsys says it has now de-risked its Design IP forecasts, both for next quarter and fiscal 2026. This provides an opportunity for the segment to surprise to the upside.

Reflecting analyst caution about FY'26, we can also see on the Zacks Detailed Estimates page that the EPS consensus for next year was taken down 15.5% from $16.71 to $14.11.

This will all keep SNPS in the dungeon of the Zacks Rank for sometime until visibility (and morale) improves.

What's interesting to me is the buying enthusiasm that came back into SNPS shares since last Thursday after the big NVIDIA/Intel partnership news. Since then, shares have surged back nearly 20% from $425.

Bottom line: There will be a time to buy SNPS again on dips below $500 as the estimate picture turns back up. The Zacks Rank will let you know.

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This article originally published on Zacks Investment Research (zacks.com).

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