Synopsys Shares Tumble 10.5% as Q3 Results and Forecast Disappoint
ByAinvest
Wednesday, Sep 10, 2025 4:36 am ET2min read
SNPS--
The Design IP segment faced challenges due to new U.S. export restrictions impacting China, a key market for IP licensing, and operational issues at a major foundry customer. These factors disrupted design starts, a critical metric for IP sales. Additionally, internal strategic decisions in the IP segment, such as pricing adjustments and product transitions, failed to deliver the expected returns [1].
For the fourth quarter, Synopsys guided adjusted EPS in a range of $2.76 to $2.80 and revenue of $2.23 billion to $2.26 billion, compared to expectations for $4.14 and $2.59 billion, respectively. The company also guided adjusted EPS for fiscal year 2025 in a range of $12.76 to $12.80 and revenue of $7.03 billion to $7.06 billion, compared to expectations for $14.58 and $7.45 billion, respectively [2].
Despite the near-term challenges, Synopsys' long-term fundamentals remain robust. The Design Automation segment, which includes tools for AI-driven chip design, surged 23% year-over-year to $1.31 billion in Q3 2025. This growth reflects the accelerating demand for AI hardware, where Synopsys' AI-driven solutions are enabling faster design cycles and higher engineering productivity [1].
The July 2025 acquisition of Ansys further amplifies Synopsys' long-term potential. By integrating Ansys' simulation and engineering software, Synopsys has expanded into adjacent markets like datacenters, electric vehicles, and industrial automation. This acquisition is expected to drive 15% revenue growth in fiscal 2025 and beyond, as cross-selling opportunities unlock new revenue streams [3].
Margin expansion also supports the bull case. Synopsys' non-GAAP operating margin hit 35.3% in Q3 2025, up four points year-over-year, driven by cost discipline and pricing power in its core tools. The company's decision to reduce its global workforce by 10% by fiscal 2026 underscores its commitment to efficiency, a move analysts view as "prudent in light of macroeconomic uncertainties" [1].
While Synopsys' Q3 results highlight execution risks, the company's long-term growth trajectory remains intact. Analysts argue that the stock's post-earnings selloff presents an "attractive entry point," given its $732 price target and "Strong Buy" consensus [1]. Synopsys' leadership in AI-driven design tools and its expanded portfolio post-Ansys acquisition position it to capture a larger share of the $12.1 billion semiconductor design market by 2028 [3].
However, investors must remain cautious. The Design IP segment's recovery hinges on the easing of export restrictions and stabilization at key foundry partners. Additionally, the integration of Ansys—a $13 billion deal—requires careful execution to avoid operational hiccups [1].
Synopsys' Q3 earnings miss is a reminder that even high-flying tech stocks face near-term turbulence. Yet, the company's strategic investments in AI, its transformative Ansys acquisition, and its resilient Design Automation segment suggest that the long-term story remains intact. For investors with a multi-year horizon, the current valuation—discounted by short-term concerns—offers an opportunity to participate in a company poised to benefit from the AI revolution and the broader semiconductor renaissance.
References:
[1] https://www.ainvest.com/news/synopsys-q3-earnings-underperformance-term-hiccup-long-term-opportunity-2509/
[2] https://finance.yahoo.com/news/synopsys-reports-soft-earnings-guidance-211038495.html
[3] https://www.ainvest.com/news/synopsys-skyrockets-2-58-dawn-eda-era-2509/
Synopsys shares fell 10.5% in extended trading after reporting weaker-than-expected Q3 results and guidance. The company earned an adjusted $3.39 per share with a 14% YoY revenue increase.
Synopsys Inc. (NASDAQ: SNPS) saw its shares fall by 10.5% in extended trading following the release of its third-quarter fiscal 2025 earnings report. The company reported adjusted earnings per share (EPS) of $3.39, falling short of the expected $3.80, and revenue of $1.74 billion, which was below the $1.77 billion estimate. The underperformance was primarily driven by headwinds in the Design IP segment, which accounts for approximately 23% of Synopsys' revenue and saw an 8% year-over-year decline to $428 million [1].The Design IP segment faced challenges due to new U.S. export restrictions impacting China, a key market for IP licensing, and operational issues at a major foundry customer. These factors disrupted design starts, a critical metric for IP sales. Additionally, internal strategic decisions in the IP segment, such as pricing adjustments and product transitions, failed to deliver the expected returns [1].
For the fourth quarter, Synopsys guided adjusted EPS in a range of $2.76 to $2.80 and revenue of $2.23 billion to $2.26 billion, compared to expectations for $4.14 and $2.59 billion, respectively. The company also guided adjusted EPS for fiscal year 2025 in a range of $12.76 to $12.80 and revenue of $7.03 billion to $7.06 billion, compared to expectations for $14.58 and $7.45 billion, respectively [2].
Despite the near-term challenges, Synopsys' long-term fundamentals remain robust. The Design Automation segment, which includes tools for AI-driven chip design, surged 23% year-over-year to $1.31 billion in Q3 2025. This growth reflects the accelerating demand for AI hardware, where Synopsys' AI-driven solutions are enabling faster design cycles and higher engineering productivity [1].
The July 2025 acquisition of Ansys further amplifies Synopsys' long-term potential. By integrating Ansys' simulation and engineering software, Synopsys has expanded into adjacent markets like datacenters, electric vehicles, and industrial automation. This acquisition is expected to drive 15% revenue growth in fiscal 2025 and beyond, as cross-selling opportunities unlock new revenue streams [3].
Margin expansion also supports the bull case. Synopsys' non-GAAP operating margin hit 35.3% in Q3 2025, up four points year-over-year, driven by cost discipline and pricing power in its core tools. The company's decision to reduce its global workforce by 10% by fiscal 2026 underscores its commitment to efficiency, a move analysts view as "prudent in light of macroeconomic uncertainties" [1].
While Synopsys' Q3 results highlight execution risks, the company's long-term growth trajectory remains intact. Analysts argue that the stock's post-earnings selloff presents an "attractive entry point," given its $732 price target and "Strong Buy" consensus [1]. Synopsys' leadership in AI-driven design tools and its expanded portfolio post-Ansys acquisition position it to capture a larger share of the $12.1 billion semiconductor design market by 2028 [3].
However, investors must remain cautious. The Design IP segment's recovery hinges on the easing of export restrictions and stabilization at key foundry partners. Additionally, the integration of Ansys—a $13 billion deal—requires careful execution to avoid operational hiccups [1].
Synopsys' Q3 earnings miss is a reminder that even high-flying tech stocks face near-term turbulence. Yet, the company's strategic investments in AI, its transformative Ansys acquisition, and its resilient Design Automation segment suggest that the long-term story remains intact. For investors with a multi-year horizon, the current valuation—discounted by short-term concerns—offers an opportunity to participate in a company poised to benefit from the AI revolution and the broader semiconductor renaissance.
References:
[1] https://www.ainvest.com/news/synopsys-q3-earnings-underperformance-term-hiccup-long-term-opportunity-2509/
[2] https://finance.yahoo.com/news/synopsys-reports-soft-earnings-guidance-211038495.html
[3] https://www.ainvest.com/news/synopsys-skyrockets-2-58-dawn-eda-era-2509/
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