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Synopsys (SNPS) Up 45% YTD: Will the Rally Extend Further?
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Synopsys (SNPS - Free Report) stock has made a remarkable comeback this year after a massive sell-off in 2022. With a year-to-date (YTD) rise of 45%, SNPS stock has more than offset last year’s decline of 13.9% in its share price.
The Synopsys stock has outperformed broader equity indexes, Nasdaq Composite, The Dow Jones Industrial Average and the S&P 500, which have increased 37.1%, 5.4% and 18.6%, respectively. It has also matched the gains of Technology Select Sector SPDR (XLK) ETF, the most important component of the broad technology market index, which has increased 44.9% YTD.
What’s Driving SNPS Stock Higher?
We believe that Synopsys’ impressive growth profile is attracting investors. Synopsys is benefiting from strong design wins due to a robust product portfolio. The growth in the hybrid working trend is driving the demand for bandwidth.
Moreover, the strong traction for Synopsys’ Fusion Compiler product is boosting the top line. The growing demand for advanced technology, design, IP and security solutions is also creating solid prospects.
The emerging cloud of AI, 5G and advanced driver-assistance system chip-set making is fueling the demand for computational software tools, which favors Synopsys’ prospects. Given the company’s capability to cater to the growing complex design requirements of customers, we believe SNPS is well-poised to capitalize on this opportunity.
Moreover, the company’s back-to-back quarters of better-than-expected financial results have boosted investors’ confidence in the stock. In the last reported financial results for the second quarter of fiscal 2023, Synopsys’ revenues jumped 9.1% year over year to $1.4 billion and surpassed the Zacks Consensus Estimate of $1.38 billion. Non-GAAP earnings improved 1.6% to $2.54 per share and handily beat the consensus mark of $2.47.
Additionally, the company’s collaboration with Juniper Networks to form a separate entity to provide an open silicon photonics platform is likely to open new avenues of growth for Synopsys.
Silicon Photonics is currently an evolving technology under which data is transferred through optical rays among computer chips, which can carry far more data at a faster speed than conventional electronic circuits. Also, silicon photonics consumes less power and generates less heat than electrical conductors. Therefore, it is more energy-efficient and cost-effective.
The silicon photonics market is witnessing significant growth for the past few years, mainly driven by the increased demand for high bandwidth and high data transfer capabilities. The ongoing digital transformation wave has also spurred the necessity for high speed and data transfer capabilities, thereby driving the demand for silicon photonics. An increase in the deployment of the 5G network is anticipated to further boost silicon photonics’ demand.
According to the MarketsAndMarkets report, the silicon photonics market is anticipated to increase at a CAGR of 28.5% and reach $5 billion by 2028 from $1.3 billion in 2022. Another market research firm, Vantage Market Research, forecasts that the silicon photonics market will increase to $7.86 billion by 2030 from $1.26 billion in 2022, representing a CAGR of 25.7%.
Therefore, by forming a separate photonics company, Synopsys and Juniper Networks are trying to tap the rapidly growing opportunities in the silicon photonics market.
What Investors Should Do Now
Amid the ongoing macroeconomic headwinds and geopolitical issues, it is prudent to pick solid growth companies as these are financially stable, accruing profits in established markets. These stocks, with their solid fundamentals, allow investors to hedge their funds from any economic downturn.
Considering Synopsys’ impressive growth profile, we believe it is the right time to invest in the stock. Apart from having solid fundamentals, the stock has the favorable combination of a Growth Score of B and a Zacks Rank #1 (Strong Buy).
Per Zacks’ proprietary methodology, stocks with a combination of a Zacks Rank #1 or #2 (Buy) and a Growth Score of A or B offer solid investment opportunities. You can see the complete list of today’s Zacks #1 Rank stocks here.
Synopsys has an impressive earnings surprise history. The company outpaced estimates in all the trailing four quarters, delivering an average earnings surprise of 3.6%. Additionally, SNPS stock has an impressive long-term earnings per share growth expectation of 15.6%.
The Zacks Consensus Estimate of $10.82 per share for fiscal 2023 earnings suggests growth of approximately 21.6% from the year-ago period. For fiscal 2024, the consensus mark for earnings is pegged at $12.23, indicating a year-over-year increase of 13.1%.
Other Stocks to Consider
Some other top-ranked stocks from the broader technology sector are Salesforce (CRM - Free Report) , Fortinet (FTNT - Free Report) and Meta Platforms (META - Free Report) . Salesforce and Fortinet each sport a Zacks Rank #1, while Meta carries a Zacks Rank #2.
The Zacks Consensus Estimate for Salesforce's second-quarter fiscal 2024 earnings has been revised upward by 21 cents to $1.90 per share for the past 60 days. For fiscal 2024, earnings estimates have moved upward by 33 cents to $7.44 per share in the past 60 days.
Salesforce's earnings beat the Zacks Consensus Estimate in the preceding four quarters, the average surprise being 15.5%. Shares of CRM have soared 71.8% YTD.
The Zacks Consensus Estimate for Fortinet’s second-quarter 2023 earnings has remained unchanged at 34 cents per share in the past 60 days. For 2023, earnings estimates have remained unchanged at $1.46 per share in the past 60 days.
Fortinet’s earnings beat the Zacks Consensus Estimate in the preceding four quarters, the average surprise being 16.4%. Shares of FTNT have rallied 44.4 % YTD.
The Zacks Consensus Estimate for Meta's second-quarter 2023 earnings has been revised a penny northward to $2.85 per share in the past 30 days. For 2023, earnings estimates have increased by 4 cents to $12.01 per share in the past seven days.
Meta’s earnings beat the Zacks Consensus Estimate twice in the preceding four quarters while missing the same on two occasions, the average surprise being 15.5%. Shares of META have surged 158.1% YTD.
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Synopsys (SNPS) Up 45% YTD: Will the Rally Extend Further?
Synopsys (SNPS - Free Report) stock has made a remarkable comeback this year after a massive sell-off in 2022. With a year-to-date (YTD) rise of 45%, SNPS stock has more than offset last year’s decline of 13.9% in its share price.
The Synopsys stock has outperformed broader equity indexes, Nasdaq Composite, The Dow Jones Industrial Average and the S&P 500, which have increased 37.1%, 5.4% and 18.6%, respectively. It has also matched the gains of Technology Select Sector SPDR (XLK) ETF, the most important component of the broad technology market index, which has increased 44.9% YTD.
What’s Driving SNPS Stock Higher?
We believe that Synopsys’ impressive growth profile is attracting investors. Synopsys is benefiting from strong design wins due to a robust product portfolio. The growth in the hybrid working trend is driving the demand for bandwidth.
Moreover, the strong traction for Synopsys’ Fusion Compiler product is boosting the top line. The growing demand for advanced technology, design, IP and security solutions is also creating solid prospects.
The emerging cloud of AI, 5G and advanced driver-assistance system chip-set making is fueling the demand for computational software tools, which favors Synopsys’ prospects. Given the company’s capability to cater to the growing complex design requirements of customers, we believe SNPS is well-poised to capitalize on this opportunity.
Moreover, the company’s back-to-back quarters of better-than-expected financial results have boosted investors’ confidence in the stock. In the last reported financial results for the second quarter of fiscal 2023, Synopsys’ revenues jumped 9.1% year over year to $1.4 billion and surpassed the Zacks Consensus Estimate of $1.38 billion. Non-GAAP earnings improved 1.6% to $2.54 per share and handily beat the consensus mark of $2.47.
Synopsys, Inc. Price and Consensus
Synopsys, Inc. price-consensus-chart | Synopsys, Inc. Quote
Additionally, the company’s collaboration with Juniper Networks to form a separate entity to provide an open silicon photonics platform is likely to open new avenues of growth for Synopsys.
Silicon Photonics is currently an evolving technology under which data is transferred through optical rays among computer chips, which can carry far more data at a faster speed than conventional electronic circuits. Also, silicon photonics consumes less power and generates less heat than electrical conductors. Therefore, it is more energy-efficient and cost-effective.
The silicon photonics market is witnessing significant growth for the past few years, mainly driven by the increased demand for high bandwidth and high data transfer capabilities. The ongoing digital transformation wave has also spurred the necessity for high speed and data transfer capabilities, thereby driving the demand for silicon photonics. An increase in the deployment of the 5G network is anticipated to further boost silicon photonics’ demand.
According to the MarketsAndMarkets report, the silicon photonics market is anticipated to increase at a CAGR of 28.5% and reach $5 billion by 2028 from $1.3 billion in 2022. Another market research firm, Vantage Market Research, forecasts that the silicon photonics market will increase to $7.86 billion by 2030 from $1.26 billion in 2022, representing a CAGR of 25.7%.
Therefore, by forming a separate photonics company, Synopsys and Juniper Networks are trying to tap the rapidly growing opportunities in the silicon photonics market.
What Investors Should Do Now
Amid the ongoing macroeconomic headwinds and geopolitical issues, it is prudent to pick solid growth companies as these are financially stable, accruing profits in established markets. These stocks, with their solid fundamentals, allow investors to hedge their funds from any economic downturn.
Considering Synopsys’ impressive growth profile, we believe it is the right time to invest in the stock. Apart from having solid fundamentals, the stock has the favorable combination of a Growth Score of B and a Zacks Rank #1 (Strong Buy).
Per Zacks’ proprietary methodology, stocks with a combination of a Zacks Rank #1 or #2 (Buy) and a Growth Score of A or B offer solid investment opportunities. You can see the complete list of today’s Zacks #1 Rank stocks here.
Synopsys has an impressive earnings surprise history. The company outpaced estimates in all the trailing four quarters, delivering an average earnings surprise of 3.6%. Additionally, SNPS stock has an impressive long-term earnings per share growth expectation of 15.6%.
The Zacks Consensus Estimate of $10.82 per share for fiscal 2023 earnings suggests growth of approximately 21.6% from the year-ago period. For fiscal 2024, the consensus mark for earnings is pegged at $12.23, indicating a year-over-year increase of 13.1%.
Other Stocks to Consider
Some other top-ranked stocks from the broader technology sector are Salesforce (CRM - Free Report) , Fortinet (FTNT - Free Report) and Meta Platforms (META - Free Report) . Salesforce and Fortinet each sport a Zacks Rank #1, while Meta carries a Zacks Rank #2.
The Zacks Consensus Estimate for Salesforce's second-quarter fiscal 2024 earnings has been revised upward by 21 cents to $1.90 per share for the past 60 days. For fiscal 2024, earnings estimates have moved upward by 33 cents to $7.44 per share in the past 60 days.
Salesforce's earnings beat the Zacks Consensus Estimate in the preceding four quarters, the average surprise being 15.5%. Shares of CRM have soared 71.8% YTD.
The Zacks Consensus Estimate for Fortinet’s second-quarter 2023 earnings has remained unchanged at 34 cents per share in the past 60 days. For 2023, earnings estimates have remained unchanged at $1.46 per share in the past 60 days.
Fortinet’s earnings beat the Zacks Consensus Estimate in the preceding four quarters, the average surprise being 16.4%. Shares of FTNT have rallied 44.4 % YTD.
The Zacks Consensus Estimate for Meta's second-quarter 2023 earnings has been revised a penny northward to $2.85 per share in the past 30 days. For 2023, earnings estimates have increased by 4 cents to $12.01 per share in the past seven days.
Meta’s earnings beat the Zacks Consensus Estimate twice in the preceding four quarters while missing the same on two occasions, the average surprise being 15.5%. Shares of META have surged 158.1% YTD.