Key Takeaways
- HSBC lifted Synopsys (SNPS) rating to Buy from Hold in Thursday’s session.
- Price target raised to $700 from $490, representing the highest on Wall Street.
- New target suggests approximately 65% potential gain from current $424.91 level.
- Firm’s fiscal 2027 EPS projection of $20.01 exceeds consensus by 13%.
- Bullish thesis centers on AI-powered EDA expansion and transition to royalty-driven revenue model.
Shares of Synopsys (SNPS) are changing hands at $424.91 following HSBC’s decision to elevate the stock to Buy from Hold on Thursday. The investment bank simultaneously increased its price objective to $700 from a prior $490.
Stephen Bersey, the analyst behind the call, arrived at the new target by applying a 35x price-to-earnings multiple to HSBC’s fiscal 2027 earnings projection of $20.01 per share. This forecast stands 13% higher than the Street’s consensus view, positioning it as the most optimistic EPS estimate among Wall Street analysts.
The $700 objective suggests potential appreciation of approximately 65% from today’s trading levels. As a reference point, Synopsys currently commands a P/E ratio of 75.
The firm has adjusted its valuation methodology to focus on fiscal 2027 projections, departing from its previous fiscal 2026 framework that utilized a 33x multiple.
Investment Thesis Behind the Upgrade
Frank Lee, HSBC’s analyst, characterized an emerging “new business model” with potential to reshape Synopsys “from a slow-growth software play to a high-growth AI beneficiary.”
Lee highlighted the company’s design IP licensing-plus-royalty framework as a critical element. He identified agentic AI deployment in electronic design automation as another significant catalyst for earnings growth.
The organization is pivoting away from its traditional “build once, sell many” strategy. Instead, it’s embracing deeper partnerships with semiconductor firms, delivering customized silicon solutions tailored to specific needs.
“It shifts Synopsys up the value chain by combining licensing revenue with royalties,” Lee noted. He anticipates this evolution will broaden the company’s addressable market as revenues become linked to chip production volumes.
This strategic pivot targets clients including hyperscalers, ASIC providers, and foundries. Lee projects the royalty income stream will deliver substantial margin enhancement.
Agentic AI as a Game Changer
Lee envisions agentic AI fundamentally transforming the operational mechanics of EDA platforms. Rather than merely supporting human engineers, these systems may soon autonomously handle complete workflows.
Synopsys is apparently investigating a departure from conventional subscription licenses designed for human users. The firm is considering subscription-plus-consumption frameworks optimized for AI agents.
This evolution could enable agents to assume greater engineering responsibilities. It might also allow them to coordinate underlying EDA platforms at significantly accelerated speeds compared to human counterparts.
InvestingPro data reveals 16 analysts have adjusted their earnings projections upward for the coming period. The company also boasts gross profit margins reaching 83%, per the same source.
Certain InvestingPro analysis indicates the equity may be overvalued against its current Fair Value calculation, a consideration worth acknowledging given the elevated valuation multiple HSBC is employing.
HSBC’s upgrade isn’t an isolated vote of confidence for Synopsys. Benchmark maintained its Buy stance following the company’s second-half fiscal 2026 performance, characterizing it as a beat-and-raise quarter.
Baird similarly elevated Synopsys to Outperform from Neutral, emphasizing an encouraging growth trajectory for fiscal 2027 and establishing a $560 target. Morgan Stanley moved the stock to Overweight from Equalweight as well, highlighting growing conviction around the Ansys merger and Design IP stabilization.
These positive calls emerged after Synopsys delivered fiscal third-quarter 2026 figures that surpassed Wall Street forecasts. The firm recorded non-GAAP earnings of $3.91 per share on $2.48 billion in revenue, exceeding projections of $3.67 per share and $2.44 billion respectively. Management subsequently increased its full-year guidance in response to the strong performance.
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