Goldman Sachs Boosts Synopsys Price Target to $700 Following Ansys Acquisition

Goldman Sachs has raised its price target for Synopsys from $620 to $700, maintaining a Buy rating. The acquisition of Ansys is seen as a strategic boon for Synopsys, with significant product synergies and a strong market position in advanced semiconductor design. Analysts forecast an average target price of $613.27, with a high estimate of $660.00 and a low estimate of $520.00. The average target implies an upside of 2.67% from the current price of $597.31.

Goldman Sachs has recently elevated its price target for Synopsys (SNPS) from $620 to $700, maintaining a Buy rating. The analyst firm attributes this bullish outlook to the strategic benefits of Synopsys' acquisition of Ansys, a leader in multi-physics simulation software. The acquisition, completed in late 2024, has positioned Synopsys to dominate a $31 billion total addressable market (TAM) in silicon-to-systems design [1].

The acquisition of Ansys marks a pivotal moment in the semiconductor design ecosystem. By combining Synopsys' electronic design automation (EDA) tools with Ansys' simulation and analysis capabilities, the merged entity now offers a seamless "silicon to systems" platform. This integration addresses a critical gap in the design process, allowing for the simulation of real-world performance before physical prototyping. This is particularly beneficial for industries like automotive, aerospace, and industrial IoT, where reduced development cycles, lower costs, and higher product reliability are critical [1].

Financially, the deal is a masterstroke. Synopsys expects the acquisition to expand its non-GAAP operating margin by 125 basis points and unlevered free cash flow (FCF) margins by 75 basis points in the first full year post-closing. By 2027, the company projects $400 million in annual cost and revenue synergies, with potential for over $1 billion in long-term savings. The combined entity's TAM is now growing at 11% annually, outpacing the broader EDA market's 10.26% CAGR [1].

The AI revolution is accelerating the need for advanced semiconductor design tools. AI chips require higher computational power and intricate system-level integration, where Synopsys' AI-driven platforms like Synopsys.ai, DSO.ai, and VSO.ai shine. These tools use machine learning to optimize chip placement, routing, and verification, reducing design cycles by up to 50% for leading-edge projects [1].

The market is responding. Synopsys' Q1 2025 results showed non-GAAP EPS of $3.03, beating analyst estimates by 8.6%, while revenue hit $1.455 billion, surpassing guidance. The company's backlog has grown to $8.1 billion, reflecting strong demand for its AI-optimized silicon solutions. As generative AI chips are projected to generate $150 billion in sales by 2025—and potentially $500 billion by 2028—Synopsys is uniquely positioned to capture a disproportionate share of this growth [1].

Synopsys already holds over 50% of the EDA market, a position now fortified by Ansys' complementary tools. The merged entity's portfolio spans chip design, verification, IP licensing, and system-level simulation, creating a moat against competitors like Cadence and Siemens. With a current ratio of 2.44 and $3 billion in net cash, Synopsys has the liquidity to fund the acquisition while maintaining a robust balance sheet [1].

The financial implications are equally compelling. Non-GAAP operating margins are expected to stabilize in the mid-40% range, while FCF margins could hit 32% by 2026. This operational leverage, combined with a projected $1 billion in annual synergies by 2028, suggests a path to deleveraging to a debt-to-EBITDA ratio of less than 2x by 2027 [1].

While the long-term outlook is bullish, investors must consider integration risks. Merging two engineering-centric companies with distinct cultures and product lines is no small feat. However, Synopsys has a proven track record of successful acquisitions and has outlined a phased integration plan focused on customer retention and innovation [1].

Regulatory hurdles, particularly in China, also persist. However, the conditional approval from China's SAMR—requiring non-discriminatory pricing—ensures continued access to a market that accounts for over 20% of Synopsys' revenue [1].

Analysts forecast an average target price of $613.27, with a high estimate of $660.00 and a low estimate of $520.00. The average target implies an upside of 2.67% from the current price of $597.31 [2].

For long-term investors, the Synopsys-Ansys combination represents a rare opportunity to participate in the next phase of the AI revolution. The company's dominance in EDA, coupled with its expanded simulation capabilities and AI-driven tools, positions it to outperform in a market expected to grow at a 11% CAGR. While short-term volatility is possible, the fundamentals—strong demand, robust margins, and a clear path to synergy realization—make SNPS a high-conviction buy for those with a multi-year horizon.

References:
[1] https://www.ainvest.com/news/synopsys-snps-stock-high-conviction-buy-ai-driven-semiconductor-ecosystem-2507/
[2] https://www.nasdaq.com/articles/synopsys-stock-your-ticket-becoming-millionaire