On Tuesday, Baird maintained a positive stance on Synopsys (NASDAQ:SNPS) shares, raising the company's price target to $661 from the previous $645, while keeping an Outperform rating on the stock.
The firm anticipates that Synopsys, along with its peer Cadence Design (NASDAQ:CDNS) Systems, is on the verge of an upward revision in estimates due to an increase in research and development investments, which are projected to grow by double-digit percentages year-over-year in the second half of 2024 and possibly into the fiscal year 2025. This follows a period of 18 months where growth was closer to the low single digits.
The analyst at Baird suggests that the current environment is reminiscent of fiscal year 2022 when both companies saw significant upward revisions to their financial expectations.
In FY22, revenue forecasts for Synopsys and Cadence began with high single-digit year-over-year growth and concluded with an impressive 19-20% increase. Similarly, earnings per share (EPS) estimates started with low double-digit growth and ended the year with a 30% rise.
The anticipated growth is partly attributed to a new cycle of verification hardware, which is expected to contribute to the positive revisions. Verification hardware is crucial in the semiconductor industry, ensuring that designs function as intended before full-scale production.
Synopsys, headquartered in Mountain View, California, is a leader in electronic design automation (EDA) software, which is used to design and test integrated circuits. As the semiconductor industry continues to evolve with increasing complexity, the demand for sophisticated EDA tools is expected to grow, potentially benefiting companies like Synopsys.
The new price target of $661 reflects Baird's confidence in Synopsys' growth trajectory and its ability to capitalize on the increasing R&D investments within the semiconductor sector. Synopsys' stock performance and future financial results will likely be observed closely by investors as the company navigates the forecasted industry growth.
In other recent news, Synopsys has been making significant strides in the semiconductor industry. KeyBanc upgraded the company's price target to $690, maintaining an Overweight rating, due to the growing opportunity in 3D integrated circuits within the electronic design automation sector.
Deutsche Bank also adjusted its outlook on Synopsys by increasing the price target to $645, reflecting the company's robust demand prospects and strategic developments.
Synopsys also announced the availability of its AI-driven multi-die reference flow and Synopsys IP for Intel (NASDAQ:INTC) Foundry's embedded multi-die interconnect bridge technology, aiming to expedite the design and production of heterogeneous multi-die systems. This collaboration with Intel Foundry is expected to offer designers a scalable solution for rapid heterogeneous integration.
The company has launched the first complete PCIe 7.0 IP solution, marking a significant milestone in data transfer technology for AI and high-performance computing data centers.
Furthermore, Synopsys reported strong financial results for the second quarter of 2024, with a 15% year-over-year increase in revenue to $1.45 billion and a 26% surge in non-GAAP earnings per share.
These are some of the recent developments that have been shaping Synopsys' trajectory in the semiconductor industry. The company's efforts in advancing chip design technologies and its robust financial performance have positioned it favorably for future growth.
InvestingPro Insights
In light of Baird's optimistic outlook on Synopsys, real-time data from InvestingPro further reinforces the company's strong financial position. With a robust market capitalization of $92.2 billion and a significant revenue growth of 25.53% in the last twelve months as of Q2 2024, Synopsys demonstrates a clear upward trajectory. The company's impressive gross profit margin of 80.39% during the same period aligns with Baird's positive stance. Moreover, Synopsys' P/E ratio stands at 64.44, reflecting high investor confidence in its earnings potential.
InvestingPro Tips highlight that Synopsys has been experiencing upward earnings revisions by analysts for the upcoming period, which may indicate future financial performance that could exceed current market expectations. Additionally, the company's gross profit margins have been noted as particularly impressive, which is a key indicator of its efficiency and profitability. For readers looking to delve deeper into Synopsys' financials and strategic position within the software industry, InvestingPro offers additional tips and insights. Readers can use the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription, gaining access to a total of 19 InvestingPro Tips for Synopsys.
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