Will SNPS' Push Into the AI Cluster Interconnect Market Drive Growth?

Synopsys SNPS is rapidly expanding in the AI cluster interconnect market with launches, including Ultra Accelerator Link and Ultra Ethernet IP solutions. The Data Center Interconnect market, which includes AI-specific interconnects, is projected to reach $25.89 billion by 2030, witnessing an 11% CAGR from 2025 to 2030, per a report by MarketsAndMarkets.

Synopsys rolled out the UALink IP solution to offer a throughput of 200 Gbps per lane, enabling its customers to scale up to 1,024 AI accelerator links and equipping them with the capability to perform data-intensive AI workloads with low latency, high bandwidth, and advanced memory sharing features.

Synopsys’ Ultra Ethernet IP is focused on enabling its customers to benefit from ultra-low latency and high bandwidth. Synopsys’ customers using Ultra Ethernet IP can build an AI scale-out network by connecting millions of nodes and use MAC and PCS controller, PHY, and verification IP, maximizing bandwidth at data rates up to 1.6 terabytes per second.

With all these offerings in its portfolio, SNPS is set to capitalize on the growing HPC and AI market, which requires high-speed, low-latency interconnects to link accelerator clusters. Synopsys is well-positioned to benefit through its Ultra Ethernet and UALink IP solutions as it deploys them in combination with its established EDA tools, PCIe, and Ethernet IP interconnect technologies.

These factors will establish SNPS at the core of next-generation multi-die and chiplet designs, making it indispensable for chip manufacturing customers. Looking ahead, SNPS’ revenue flow seems to be steady. The Zacks Consensus Estimates for SNPS’ fiscal 2025 and 2026 revenue are expected to show 12.5% and 38% growth rate.

How Competitors Fare Against SNPS

SNPS faces a major threat from the Ultra Ethernet Consortium and companies like Broadcom AVGO and Marvell Technology MRVL. Some of these rivals have the capability to vertically integrate their chips and network to reduce reliance on third-party IP.

Broadcom develops networking ASICs, Ethernet switches, and PHYs that dominate data centers. Broadcom also builds custom silicon for hyperscalers like Google and Meta, proving that the company has a deep, in-house interconnect IP and is not reliant on third-party IPs from Synopsys.

Similarly, Marvell Technology develops custom ASICs, DPU/NIC chips, and SerDes PHY IP used in AI and HPC interconnects. Marvell Technology provides integrated interconnect and compute chips to hyperscalers. Marvell Technology’s co-packaged optics and chiplet interconnect technology directly challenge Synopsys in the interconnect market.

SNPS’ Price Performance, Valuation and Estimates

Shares of SNPS have lost 10.2% year to date against the Computer - Software industry’s growth of 19.9%.

From a valuation standpoint, SNPS trades at a forward price-to-sales ratio of 8.42X, higher than the industry’s average of 8.56X.

The Zacks Consensus Estimate for SNPS’ fiscal 2025 earnings implies a year-over-year decline of 2.8%, while the consensus estimate for 2026 earnings implies year-over-year growth of 9.5%. The consensus estimate for fiscal 2025 earnings has remained unchanged for the past 30 days, while the 2026 earnings estimate has been revised downward in the past 30 days.

SNPS currently carries a Zacks Rank #5 (Strong Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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

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