HSBC Upgrades Synopsys to Buy, Sees 28% Earnings Growth Through 2028

HSBC analyst Frank Lee upgraded Synopsys (NASDAQ:SNPS | SNPS Price Prediction) to buy from hold and raised his price target to $700 from $490. Lee argues that a change in the chip design software leader’s business model could lift annual earnings growth from 7% to 28% through 2028.

Synopsys stock rose 4.38% in premarket trading to $443.50. The analyst upgrade presents Synopsys as an AI growth story, and near-term volatility remains a real risk.

HSBC’s Royalty Thesis Could Reset Synopsys’ Growth Curve

In a research note, Lee said the new business model will turn Synopsys from a “slow-growth software play to a high-growth AI beneficiary,” with the faster earnings growth “creating significant re-rating potential.” He sees the design intellectual property royalty model as the main driver of that earnings growth.

Management has described the same shift. On the third-quarter call, the chief executive said Synopsys is in advanced talks to move from a traditional IP license to “a license plus a royalty” with customers that include hyperscalers and ASIC vendors. He added, “We are in active discussions with multiple Factory 2 customers.”

Design IP revenue reached $474 million, up about 11% year-over-year. The die-to-die business is “on pace to double year over year,” and Synopsys won more than 95% of PCIe 7 opportunities.

Company Snapshot: Synopsys One Year After Ansys

Synopsys is a leading provider of electronic design automation (EDA) software and semiconductor IP. It expanded into wider engineering software when its $35B Ansys acquisition closed in fiscal Q3 2025.

Fiscal Q3 2026 revenue rose 42.4% YoY to $2.48B. Non-GAAP EPS came in at $3.91, beating the $3.67 consensus, and the non-GAAP operating margin was 41.6%. Management raised its full-year guidance to revenue of $9.69B to $9.74B and non-GAAP EPS of $15.04 to $15.10. Backlog stood at $10.9 billion.

Why Wall Street Is Rethinking Synopsys Right Now

Shares have gained 16.35% over the past week but remain down 5.58% year to date. The stock trades at about 23x forward earnings, compared with a trailing P/E near 72.

Analysts’ estimates are moving higher. The consensus fiscal 2027 EPS estimate rose to $17.5259 from $17.2343 90 days ago.

Over the past 30 days, there were 17 up updates and just 1 down updates. HSBC’s $700 target is well above the consensus target of $545.55. Synopsys also announced an agentic AI partnership with TSMC (NYSE:TSM) this week.

What It Means for Your Portfolio

Synopsys offers retirement-focused investors exposure to AI chip design complexity through recurring software and IP revenue. The stock pays no dividend, so any return depends on earnings growth.

The risks are real:

• Export controls and Entity List restrictions
• Customer concentration
• Ansys integration
• Fourth-quarter restructuring charges
• Total debt of about $10 billion

Key signals to watch include signed Factory 2 royalty deals and the updates to the long-term IP growth outlook that management has promised for Investor Day.

The royalty shift is really an AI infrastructure story, since Synopsys gets paid every time a hyperscaler or ASIC vendor produces new silicon (we featured seven companies riding the same expansion, outside the chipmakers themselves, in a free report here: 7 Stocks Powering the AI Boom (That Aren’t Chipmakers)).

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