Synopsys upgrade bets on FY27 growth rebound and stronger chip-design demand

Investing.com -- Synopsys is positioned for a stronger fiscal 2027 as demand for electronic design automation and chip-design intellectual property improves, Baird said, upgrading the semiconductor software provider to Outperform and raising its price target to $560.

Baird said expectations have fallen sufficiently following a subdued fiscal 2026 that the risk-reward now favors the stock, particularly as recent results point to improving performance heading into fiscal 2027. The brokerage expects double-digit organic revenue growth next year and sees scope for revenue and free-cash-flow estimates to rise.

The company's third-quarter results provided an early indication of that recovery. Revenue rose 40% to about $2.48 billion, roughly 2% above Baird's estimate, with electronic design automation and the Ansys business driving the outperformance. EDA revenue increased 8% year over year, while Design IP rose 11%. EBIT margin reached 42%, above 39% a year earlier and the 40% consensus estimate.

Baird also raised its fiscal 2026 outlook, projecting revenue growth of 38% and an EBIT margin of 41.5%. It expects adjusted earnings per share to rise 17% and free cash flow to reach $2.6 billion, $600 million above its previous forecast.

The brokerage sees several potential growth engines in the next fiscal year. It expects Synopsys to benefit from incorporating Ansys simulation capabilities into its design tools, greater use of agentic AI in engineering workflows and hardware-assisted verification. About 30 agentic AI engagements are already under way, according to the report.

Design IP is another potential catalyst. Baird said Synopsys holds more than half of the interface IP market and expects demand for interface, memory and die-to-die technologies to strengthen as AI systems become more complex. Portfolio changes made over the past year could help the business return to stronger growth in fiscal 2027, while a new licensing and royalty model could provide additional upside later in the year.

Baird raised its price target to $560, equivalent to 25 times earnings, from $558 previously. Its fiscal 2027 adjusted EPS estimate is $18.15, up from $17.52, while the shares were trading at $410 on Aug. 26.

The brokerage expects a Sept. 30 investor day to provide more detail on the growth outlook for EDA, Design IP and Ansys, as well as the company's longer-term financial framework.

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