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].

Core Insights - Synopsys' AI-driven electronic design automation (EDA) tools are experiencing rapid adoption, leading to significant productivity gains for customers [1] - The company has established strong partnerships with various firms, including Advanced Micro Devices and Toshiba, indicating its growing influence in the EDA market [1] - Synopsys' software-based verification tools are increasingly utilized by both traditional semiconductor and emerging system companies, driven by the need for precise verification in advanced nodes [2] Company Developments - The implementation of the ZeBu Server 4 design emulation system by AI-chip developers is enhancing System-on-Chip (SoC) verification processes [3] - Synopsys has expanded its capabilities in the SoC verification and IP space through the acquisition of Intrinsic ID, which enhances security by generating unique identifiers for SoCs [4] - Recent acquisitions, including ANSYS, are expected to create synergies that strengthen Synopsys' EDA offerings [3][4] Competitive Landscape - Synopsys faces competition from EDA vendors like Cadence Design Systems and Siemens, which offer similar tools and services for chip design [5][6] - These competitors focus on different phases of the integrated circuit (IC) design process, potentially increasing competition and impacting Synopsys' pricing and profit margins [6] Financial Performance - Synopsys shares have declined by 8.5% year-to-date, contrasting with a 19.8% growth in the Computer - Software industry [7] - The company's forward price-to-sales ratio stands at 8.58X, slightly above the industry average of 8.55X [9] - Earnings estimates for fiscal 2025 indicate a year-over-year decline of 2.8%, while estimates for 2026 suggest a growth of 9.5% [10]

Core Insights - Synopsys, Inc. is enhancing its role in semiconductor design through an expanded collaboration with Taiwan Semiconductor Manufacturing Company (TSMC) to meet the increasing demand for high-performance AI and system-on-chip (SoC) technologies [1][5] Collaboration with TSMC - Synopsys has certified its digital and analog design flows on TSMC's N2P and A16 processes, utilizing the NanoFlex architecture to optimize chip performance, reduce power consumption, and accelerate time-to-market [2][10] - The IC Validator certification for TSMC A16 improves physical verification, facilitating faster and more reliable design sign-offs [2] - The 3DIC Compiler platform supports advanced 3D stacking and CoWoS packaging technologies, contributing to multiple customer tape-outs and enhancing productivity for complex multi-die designs [3][10] - Synopsys is also collaborating with TSMC on silicon photonics, utilizing AI-optimized photonic flow to address performance and thermal challenges in AI systems [3] Comprehensive IP Portfolio - Synopsys' extensive IP portfolio supports leading standards such as PCIe 7.0, UCIe, HBM4, and 1.6T Ethernet, with dedicated automotive IP for TSMC's N5A and N3A nodes targeting key markets like AI, automotive, and high-performance computing [4] Strategic Partnerships - In addition to TSMC, Synopsys has formed strong partnerships with Intel Corporation and Arm Holdings to advance chip design and innovation [6][9] - The collaboration with Intel focuses on enabling design flows and IP solutions for Intel's latest 18A process node, optimizing performance, power, and area for next-generation processors [7] - Synopsys provides EDA tools and a broad IP portfolio compatible with Arm's CPU, GPU, and AI cores, ensuring quick integration of components and meeting power and performance targets [8][9] Industry Positioning - The strengthened collaboration with TSMC reinforces Synopsys' position as a critical partner in advanced chip development, well-positioned to drive long-term growth in the AI and multi-die era [5]

Financial Data and Key Metrics Changes - The company reported Q1 revenue of $1.46 billion, down 4% year-over-year, and non-GAAP EPS of $3.03, down 10% due to one less work week compared to Q1 '24 [6][32] - Non-GAAP operating margin was 36.5%, with total GAAP costs and expenses at $1.2 billion [32] - For fiscal year 2025, the revenue guidance is set between $6.745 billion and $6.05 billion, with non-GAAP EPS guidance of $14.88 to $14.96 per share [33][36] Business Line Data and Key Metrics Changes - Design Automation revenue increased by 4% year-over-year, despite one less week of revenue [11] - The company launched new HAPS 200 prototyping systems and ZeBu 200 emulation systems, enhancing performance significantly [12] - Design IP revenue decreased by 17% year-over-year, but opportunities are expanding due to AI customer needs [23] Market Data and Key Metrics Changes - AI and HPC markets remained robust, while industrial, automotive, and consumer electronics faced challenges [7] - China sales showed a deceleration trend, with expectations of continued decline below corporate average due to restrictions and economic slowdown [50][76] Company Strategy and Development Direction - The company is focused on AI-driven design solutions and is progressing with the acquisition of ANSYS to enhance its offerings [9] - The strategy emphasizes addressing design complexity and energy demands through innovative solutions [8] - The company aims to leverage AI capabilities to transform engineering workflows and improve productivity [18][108] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's resilient business model and strong momentum driven by AI growth [29] - The outlook for semiconductor R&D investment is positive, expected to grow from 6% to 9% of sales per year [41] - Management acknowledged challenges in the consumer electronics and automotive sectors but noted a recent acceleration in design activity [44][58] Other Important Information - The backlog exiting Q1 was reported at $7.7 billion [67] - Cash flow from operations was approximately $1.8 billion, with free cash flow around $1.6 billion [34] Q&A Session Summary Question: Growth trends in AI and non-AI segments - Management noted a bifurcation in the semiconductor market, with strong demand in AI and HPC, while consumer electronics and automotive are slower [39][41] Question: Sales performance in China - Management indicated that sales in China are expected to continue decelerating due to restrictions and economic factors [50][76] Question: Design activity for non-AI customers - Management observed a stabilization in design activity for non-AI customers, particularly in mobile and PC sectors [58] Question: Cost control and guidance for next quarter - Management highlighted that Q1 costs were lower than anticipated due to timing, but Q2 typically sees a step-up due to merit increases [112][115] Question: Backlog composition and customer engagement - Management confirmed no significant change in customer behavior regarding backlog duration, maintaining consistent contract durations [81][82]