SNPS Stock Plunges 25% in 3 Months: Should You Buy, Sell or Hold?

Core Viewpoint - Synopsys (SNPS) stock has experienced a significant decline of 25.3% over the past three months, underperforming the Zacks Computer - Software industry, which returned 1.4% during the same period. This raises questions about whether investors should hold or exit the stock [1][8]. Group 1: Growth Prospects - Synopsys is focusing on AI-driven electronic design automation (EDA) tools, such as Synopsys.ai and Fusion Compiler, which are being rapidly adopted by customers, leading to substantial productivity gains [4]. - The company is expanding into the AI cluster interconnect market with new products like Ultra Accelerator Link and Ultra Ethernet IP solutions, benefiting from the projected growth of the Data Center Interconnect market, expected to reach $25.89 billion by 2030, with an 11% CAGR from 2025 to 2030 [5]. - The Zacks Consensus Estimate for Synopsys' fiscal 2025 revenues is $7.05 billion, indicating a year-over-year growth of 12.5% [9]. Group 2: Market Challenges - Synopsys faces significant competition from companies like Broadcom and Marvell Technology, as well as EDA vendors such as Cadence Design Systems and Siemens, which are challenging its market position [10][12][13]. - The Design IP business of Synopsys has declined by 8% year-over-year due to delays from foundry customers and internal resource allocation issues, leading to a muted outlook for fiscal 2026 [17]. - Operating margins are under pressure due to weakness in the Design IP business and geopolitical risks, particularly in China, which are affecting the business outlook [18]. Group 3: Valuation Concerns - Synopsys is currently trading at a premium valuation, with a forward 12-month price-to-sales (P/S) ratio of 8.83X, higher than the industry average of 8.54X, contributing to a Zacks Value Score of F [20]. - The Zacks Consensus Estimate for fiscal 2025 earnings is $12.8 billion, indicating a year-over-year decline of 2.8% [14]. Group 4: Conclusion - Given the combination of high valuation, declining margins, increasing competition, and challenges in the Design IP business, it is suggested that investors consider selling SNPS stock [21].