Even At Today’s Multiples I Keep Adding Synopsys Over And Over
Before a single AI chip reaches a fab, it passes through Synopsys software, and that chokepoint keeps getting harder to route around. Here is why a stretched valuation, ten billion dollars of acquisition debt, and slowing EDA growth have not…
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I have added Synopsys (NASDAQ:SNPS | SNPS Price Prediction) after every earnings report this year. Before any AI chip reaches a fab, engineers design, verify, and sign off on it using Synopsys software. Each new chip generation is harder to build, requiring more tools, licenses, and simulation. I want to own that toll road for the next decade.
Growth That Keeps Beating the Forecasts
Fiscal Q3 revenue reached $2.48B, up 42.4% YoY. Non-GAAP EPS of $3.91 beat the $3.67 consensus by 6.44%, which makes four straight beats. Management then raised full-year guidance for the second time. Non-GAAP EPS guidance has been raised to $15.04 to $15.10, up from an original $14.38 to $14.46, and free cash flow guidance is about $2.6B.
Ansys is pulling its weight. Management expects it to contribute about $2.98 billion this year, $20 million above prior guidance. The company targets $400 million in cost synergies by year four. Joint products like Multiphysics Fusion should add to EDA growth in fiscal 2027.
A Moat Built on Sign-Off Trust
EDA runs as a duopoly. Backlog stood at $10.9 billion at Q3 end. CEO Sassine Ghazi noted: “Customers will not invest hundreds of millions of dollars in a product without having the confidence that it is going to work.” Synopsys won more than 95% of PCIe 7 opportunities, and its die-to-die business is on pace to double.
Why My Money Goes Here Instead of Cadence
Cadence Design Systems (NASDAQ:CDNS) is the alternative. Cadence trades at a forward P/E of 32 and 16.68 times sales. Synopsys trades at a forward P/E of 23 and 9.94 times sales. The stock rose 21.7% last week to $505.17, and even at that price it sits near 27x the $18.583 fiscal 2027 consensus.
Debt and Integration Risks I Refuse to Ignore
Ansys left Synopsys carrying about $10 billion of debt. Restructuring charges should total $200M to $250M this fiscal year, and roughly $403M of quarterly amortization drives the trailing P/E to 86. China export controls, a short customer list, and shareholder lawsuits over Design IP add risk. Q3 EDA growth slowed to 8.5%.
None of that has changed my thesis. Management repaid $3.46B of debt in the first half and paid off term loans early. Total liabilities fell 19.6% YoY, and cash rose to $3.61B. Double-digit organic EDA growth is also expected in Q4 and for the full year.
What Keeps My Buy Button Active
Analysts made 18 upward revisions to fiscal 2027 EPS over the past seven days, with none lower. Royalty-based custom IP, agentic AI workflows, and joint Ansys products sit ahead. Synopsys pays no dividend. The stock has returned 752.46% over ten years. Chips keep getting harder to design, Synopsys sends a bill for every added layer of difficulty, and I expect to own a bigger share of those bills.
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Alex Sirois is a financial writer with experience spanning both retail and institutional investing. He has written for InvestorPlace and held roles at BNY Mellon and Bernstein, giving him a perspective that bridges Main Street portfolios and Wall Street analysis.
Alex holds an MBA from George Washington University and has built his career across multiple industries, including e-commerce, education, and translation — a breadth of experience that informs how he breaks down complex financial topics for everyday investors. His writing is conversational, actionable, and grounded in long-term, buy-and-hold investing principles.
At 247 Wall St., Alex focuses on delivering analysis that is both accessible and useful, with a clear emphasis on helping readers make more informed decisions with their money.
