EDA's Rebound: Why Synopsys and Cadence Are Poised for Growth as Trade Tensions Ease

The U.S. decision to lift export restrictions on electronic design automation (EDA) tools to China in June 2025 has created a pivotal moment for semiconductor software firms like Synopsys (SNPS) and Cadence Design Systems (CDNS). The removal of these curbs, part of a fragile trade truce, opens the door to a revenue recovery in a critical market while reducing near-term geopolitical risks. Meanwhile, the pending Synopsys-Ansys merger—now nearing regulatory completion—could unlock a new era of innovation in AI-driven chip design. Investors should position for this sector's rebound, but remain vigilant about lingering policy uncertainties.

The Trade Truce Opens the Floodgates

The U.S. Commerce Department's decision to rescind EDA export controls marks a critical shift in U.S.-China trade relations. For Synopsys and Cadence, which collectively control over 70% of China's EDA market, this means immediate relief: Synopsys alone derives ~10% of its revenue from China. With access restored, both companies can resume sales of software critical to designing advanced chips—everything from AI accelerators to 5G components.

The data will likely show a snapback in Q3 2025 revenue, particularly for Synopsys, which had withdrawn its financial guidance in May due to the restrictions. Analysts now forecast a 5-7% revenue boost for SNPS in 2025 alone from the China rebound, while CDNS's exposure to Chinese foundries (e.g., SMIC) could drive similar gains.

The trade truce also eases geopolitical pressure. The U.S. and China agreed to a temporary suspension of retaliatory measures, with China expediting rare earth exports to the U.S. in exchange. While tariffs on Chinese goods remain (55% for the U.S., 10% for China), the removal of EDA restrictions signals a willingness to de-escalate tech conflicts—a tailwind for EDA stocks.

M&A Momentum Gains Steam

The Synopsys-Ansys merger, valued at $35 billion, is now on track to close after the U.S. FTC imposed conditions to address antitrust concerns. The FTC's requirement that Synopsys divest optical and photonic software assets to Keysight (KEYS) resolves competition issues in niche markets like photonic design tools. Importantly, the U.S. approval sets a precedent for the merger's final hurdle: China's State Administration for Market Regulation (SAMR).

The lifting of export restrictions could accelerate SAMR's approval process. With the U.S. and China now cooperating on EDA, SAMR is less likely to block a merger that promises global R&D synergies. The combined entity's AI-driven chip design tools—critical for advanced semiconductor nodes—could gain significant market share. Investors should watch for a SAMR decision by late Q3 2025, with the merger likely closing by year-end.

Beware the Lingering Risks

While the near-term outlook is positive, risks remain. First, the trade truce expires in August 2025, and U.S.-China tensions over tech could reignite. The U.S. retains export controls on advanced semiconductor manufacturing equipment (e.g., ASML's EUV lithography tools), and China's push for self-reliance in EDA (via firms like Empyrean) could erode long-term dependency.

Second, the Synopsys-Ansys merger's success hinges on execution. Integrating Ansys's simulation tools with Synopsys's design software is complex, and failure to achieve synergies could disappoint investors.

Lastly, macroeconomic factors loom large. China's semiconductor industry faces headwinds from weak consumer demand and overcapacity in legacy chip fabs. While advanced node investments (e.g., TSMC's 3nm plant in China) proceed, the sector's recovery won't be linear.

Investment Strategy: Play the Rebound with Leaders

For investors, the EDA sector's rebound offers compelling opportunities.

1. Buy Synopsys (SNPS): As the EDA leader with ~33% market share, SNPS stands to gain most from China's recovery. The merger with Ansys adds AI-driven tools that will dominate the next wave of chip design for AI/ML and HPC systems.

2. Add Cadence (CDNS): While smaller than SNPS, CDNS's strength in analog/mixed-signal design and foundry partnerships (e.g., TSMC, Samsung) positions it to capture niche demand. Its stock typically trades at a discount to SNPS but offers asymmetric upside if China's semiconductor spending accelerates.

3. Monitor SAMR Approval Timing: A positive SAMR decision by September 2025 would likely trigger a 15-20% rally in SNPS, as the merger's full synergies become visible.

4. Avoid Overpaying: With SNPS up ~15% YTD and CDNS up ~20%, investors should wait for dips ahead of the merger's closing.

Final Take

The U.S.-China trade truce has turned the page on a destructive chapter for EDA firms. With China's semiconductor industry hungry for advanced design tools and the Synopsys-Ansys merger nearing completion, now is the time to stake a position in this sector. Leaders like SNPS and CDNS are the best vehicles to capture both near-term revenue recovery and long-term innovation cycles—but keep one eye on the geopolitical horizon.