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Should You Buy, Sell or Hold Synopsys Stock at a P/E of 24.71X?
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Key Takeaways
SNPS' Design IP revenues grew 11% year over year in Q3 FY26, reaching 19.1% of total revenue.
Synopsys is shifting toward custom IP subsystems as AI drives demand for high-speed interconnect.
SNPS' EDA portfolio, NVIDIA partnership and Ansys acquisition strengthen its competitive position.
Synopsys (SNPS - Free Report) trades at a forward price-to-earnings (P/E) multiple of 24.71X, higher than the Zacks Computer - Software industry’s P/E of 23.53X. The premium valuation of SNPS stock is further substantiated by the Zacks Value Score of D.
SNPS Forward 12-Month (P/E) Performance Chart
Image Source: Zacks Investment Research
SNPS has returned 16.3% in the past year, outperforming the industry and the Zacks Computer and Technology sector. The Zacks Computer - Software industry has declined 4.1%, while the broader sector has returned 6.4% in the past year.
SNPS One-Year Performance Chart
Image Source: Zacks Investment Research
Given these dynamics, the question arises whether investors should buy, sell or hold SNPS stock. Let’s discuss the fundamentals to see what the next move should be.
SNPS’ AI-Focused Design IP Strategy Drives Growth
Synopsys’ Design IP includes logic libraries, embedded memories, wired interface IP, memory interface IP and security IP. In the third quarter of fiscal 2026, Design IP accounted for 19.1% of the total revenue and was up 11% year over year with adjusted operating margin improving to 26.5%. Synopsys holds a leading position in interface and foundation IP. The business is increasingly focused on areas benefiting from AI-driven semiconductor complexity. Synopsys said demand for high-speed interconnect IP is accelerating because of AI’s massive data requirements.
Synospys’ standards-based IP that can be developed once and licensed repeatedly across customers and applications is gaining traction. Its portfolio includes high-speed interface, memory and die-to-die connectivity IP, which are increasingly important as AI systems require higher bandwidth, faster data transfer and more complex chip architectures. In automotive, the company maintained a design-win rate above 90% for three consecutive quarters as advanced driver-assistance systems (ADAS) transitioned to 5-nanometer and 3-nanometer technologies. Its USB IP portfolio has also surpassed $2 billion in lifetime bookings.
SNPS also focuses on developing differentiated IP subsystems and enabling custom silicon solutions tailored to customers’ workloads and architectures. Hyperscalers, ASIC vendors, foundries and semiconductor companies are seeking deeper engineering collaboration to accelerate chip development through this model. Synopsys completed the Processor IP solutions divestiture during the quarter.
The divestiture helped SNPS reduce backlog, while reallocating resources toward customized IP subsystems and custom-silicon engagements under its Factory 2 model. Those opportunities were still in active customer discussions in the third quarter. Management expects Design IP to grow sequentially in the fourth quarter of fiscal 2026, making execution on the portfolio transition central to rebuilding segment economics.
SNPS Strengthens Its Competitive Edge in the EDA Space
Synopsys faces competition from EDA vendors, such as Cadence Design Systems Inc. (CDNS - Free Report) , Keysight Technologies (KEYS - Free Report) and Siemens (SIEGY - Free Report) . These companies offer products focused more on distinct phases of the IC design process and provide a range of services to companies throughout the world to help optimize their product development process, among other things.
Keysight Technologies competes in the electronic design and testing space, particularly providing software solutions for electromagnetic analysis, circuit simulation and hardware verification. While Cadence benefits from higher design complexity and rising customer spend on AI-driven automation.
Amid rapid AI proliferation, the Cadence.ai portfolio has been gaining strength and the new product launches like AgentStack, along with ChipStack, ViraStack and InnoStack AI Super Agents, are expected to aid in sustaining the momentum. Siemens EDA, Siemens' electronic design automation division, and Cadence Design Systems both provide EDA tools, including software, hardware and services essential for designing chips and semiconductor devices.
However, SNPS is continuously improving its expertise in EDA with launches like the first Multiphysics Fusion solutions, combining AI-powered EDA tools with advanced multiphysics analysis to improve chip design accuracy, accelerate design closure and support AI and multi-die semiconductor development. Partnership with NVIDIA also positions SNPS higher than its competitors.
Image Source: Zacks Investment Research
Conclusion: Buy SNPS Stock Now
Synopsys is gaining from design wins, driven by a broad product portfolio. Growth in the hybrid working trend is driving demand for bandwidth. Broad demand for advanced chip design, verification and simulation tools and a more diversified portfolio following the Ansys acquisition are benefiting the company. Backlog and a high mix of recurring revenues improve visibility, and Design Automation continues to deliver the bulk of profits. Given these dynamics, we suggest that investors should accumulate this Zacks Rank #1 (Strong Buy) stock. You can see the complete list of today’s Zacks #1 Rank stocks here.
View the Zacks #1 Rank List
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Should You Buy, Sell or Hold Synopsys Stock at a P/E of 24.71X?
Key Takeaways
Synopsys (SNPS - Free Report) trades at a forward price-to-earnings (P/E) multiple of 24.71X, higher than the Zacks Computer - Software industry’s P/E of 23.53X. The premium valuation of SNPS stock is further substantiated by the Zacks Value Score of D.
SNPS Forward 12-Month (P/E) Performance Chart
Image Source: Zacks Investment Research
SNPS has returned 16.3% in the past year, outperforming the industry and the Zacks Computer and Technology sector. The Zacks Computer - Software industry has declined 4.1%, while the broader sector has returned 6.4% in the past year.
SNPS One-Year Performance Chart
Image Source: Zacks Investment Research
Given these dynamics, the question arises whether investors should buy, sell or hold SNPS stock. Let’s discuss the fundamentals to see what the next move should be.
SNPS’ AI-Focused Design IP Strategy Drives Growth
Synopsys’ Design IP includes logic libraries, embedded memories, wired interface IP, memory interface IP and security IP. In the third quarter of fiscal 2026, Design IP accounted for 19.1% of the total revenue and was up 11% year over year with adjusted operating margin improving to 26.5%. Synopsys holds a leading position in interface and foundation IP. The business is increasingly focused on areas benefiting from AI-driven semiconductor complexity. Synopsys said demand for high-speed interconnect IP is accelerating because of AI’s massive data requirements.
Synospys’ standards-based IP that can be developed once and licensed repeatedly across customers and applications is gaining traction. Its portfolio includes high-speed interface, memory and die-to-die connectivity IP, which are increasingly important as AI systems require higher bandwidth, faster data transfer and more complex chip architectures. In automotive, the company maintained a design-win rate above 90% for three consecutive quarters as advanced driver-assistance systems (ADAS) transitioned to 5-nanometer and 3-nanometer technologies. Its USB IP portfolio has also surpassed $2 billion in lifetime bookings.
SNPS also focuses on developing differentiated IP subsystems and enabling custom silicon solutions tailored to customers’ workloads and architectures. Hyperscalers, ASIC vendors, foundries and semiconductor companies are seeking deeper engineering collaboration to accelerate chip development through this model. Synopsys completed the Processor IP solutions divestiture during the quarter.
The divestiture helped SNPS reduce backlog, while reallocating resources toward customized IP subsystems and custom-silicon engagements under its Factory 2 model. Those opportunities were still in active customer discussions in the third quarter. Management expects Design IP to grow sequentially in the fourth quarter of fiscal 2026, making execution on the portfolio transition central to rebuilding segment economics.
SNPS Strengthens Its Competitive Edge in the EDA Space
Synopsys faces competition from EDA vendors, such as Cadence Design Systems Inc. (CDNS - Free Report) , Keysight Technologies (KEYS - Free Report) and Siemens (SIEGY - Free Report) . These companies offer products focused more on distinct phases of the IC design process and provide a range of services to companies throughout the world to help optimize their product development process, among other things.
Keysight Technologies competes in the electronic design and testing space, particularly providing software solutions for electromagnetic analysis, circuit simulation and hardware verification. While Cadence benefits from higher design complexity and rising customer spend on AI-driven automation.
Amid rapid AI proliferation, the Cadence.ai portfolio has been gaining strength and the new product launches like AgentStack, along with ChipStack, ViraStack and InnoStack AI Super Agents, are expected to aid in sustaining the momentum. Siemens EDA, Siemens' electronic design automation division, and Cadence Design Systems both provide EDA tools, including software, hardware and services essential for designing chips and semiconductor devices.
However, SNPS is continuously improving its expertise in EDA with launches like the first Multiphysics Fusion solutions, combining AI-powered EDA tools with advanced multiphysics analysis to improve chip design accuracy, accelerate design closure and support AI and multi-die semiconductor development. Partnership with NVIDIA also positions SNPS higher than its competitors.
Image Source: Zacks Investment Research
Conclusion: Buy SNPS Stock Now
Synopsys is gaining from design wins, driven by a broad product portfolio. Growth in the hybrid working trend is driving demand for bandwidth. Broad demand for advanced chip design, verification and simulation tools and a more diversified portfolio following the Ansys acquisition are benefiting the company. Backlog and a high mix of recurring revenues improve visibility, and Design Automation continues to deliver the bulk of profits. Given these dynamics, we suggest that investors should accumulate this Zacks Rank #1 (Strong Buy) stock. You can see the complete list of today’s Zacks #1 Rank stocks here.