Synopsys Stock Rises. Why This Analyst Sees a Buying Opportunity After Wednesday’s Pummeling.

Synopsys posted worse-than-expected earnings and revenue for the fiscal third quarter. (David Paul Morris/Bloomberg)

Key Points

About This Summary

• Synopsys shares fell 36% Wednesday, the largest same-day percentage decrease since February 1992, due to weak IP business.
• Mizuho analysts see the decline as a buying opportunity, expecting Synopsys to recover despite challenges with a major customer.
• Synopsys is cutting headcount by 10% and focusing on growth areas like AI.

Shares of Synopsys suffered their worst same-day percent decrease on record Wednesday. With investor confidence shaken, it may seem difficult for the company to bounce back. However, some analysts think a recovery is inevitable, and now is the time to buy.

Mizuho analysts described the double-digit percent decline in the stock relative to a flat S&P 500 as “an overreaction and a buying opportunity,” after the electronic design automation company’s fiscal third-quarter earnings revealed weakness in its intellectual property business.

Shares ended the session down 36% on Wednesday, marking the largest same-day percentage decrease since Synopsys began trading in February 1992. However, the stock was on the rise Thursday, gaining 8.1% to $419.24. Peer Cadence Design Systems rose2.5%, while the benchmark S&P 500 was up 0.6%.

Mizuho admitted that the latest results, disclosed Tuesday evening, were “a mixed bag,” as strength in design automation was offset by weakness in the company’s semiconductor IP segment.

The challenges will only continue. In the earnings release, Synopsys cited issues with one of its largest customers, believed to be Intel. “The associated disruptions to Synopsys’ IP roadmap will likely continue for a few quarters as Synopsys aligns its roadmap with Intel’s plans,” Mizuho wrote Thursday.

This will likely lead to “muted IP business trends” in fiscal 2026, in the form of growth that is well below the company’s mid-teens longer-term target.

In addition to an ongoing IP roadmap reset, Synopsys completed its acquisition of software provider Ansys in July. The deal is unlikely to bear fruit in fiscal 2026, which Mizuho describes as a “transition year.”

However, the firm remains confident that management will be able to sustain growth in electronic design automation and simulation while focusing on profitability and debt reduction.

Mizuho is a believer in the “disciplined” approach showcased on the earnings call, in which CEO Sassine Ghazi outlined the steps management would take to inject life back into the struggling business.

One measure is reducing headcount at the organization by 10%. Ghazi said Tuesday that the plan to downsize could give Synopsys the opportunity to achieve a $400 million annual run rate earlier than expected.

Secular trends also remain supportive of future growth, Mizuho posited, as generative artificial intelligence and increased traction with systems companies and hyperscalers alike will usher in future gains. In short, “we continue to see SNPS as a compelling growth compounder,” analysts wrote.

Mizuho isn’t the only firm sensing a buying opportunity. Of 25 analysts tracked by FactSet, 21 analysts polled by FactSet rate Synopsys at Buy or the equivalent, three at Hold, and one at Underweight.

Write to Mackenzie Tatananni at mackenzie.tatananni@barrons.com