Wall Street Eyes +30% Upside in Synopsys After Huge Earnings Fall

Key Points

• Synopsys was deeply red on Sept. 10, with shares dropping more than 30%.
• The company's poor Design IP performance and outlook weighed on the stock. However, there are reasons to believe its forecasts are conservative.
• Wall Street analysts broadly lowered their price targets, but still forecast considerable upside in shares.

While stocks like Oracle NYSE: ORCL had an incredible day on Sept. 10, one name stuck out like a sore thumb. That stock was Synopsys NASDAQ: SNPS, a company that is among the most important players in the semiconductor ecosystem. Shares closed down by a whopping 36%, reacting to the company’s Sept. 9 earnings. However, markets were quick to see the selloff as overblown. Shares whipsawed, surging nearly 13% on Sept. 11. 

With such volatile moves surrounding this vital company, Synopsys’s results and outlook deserve examination. Is SPNS still a good buy, or have resourceful traders already taken away the opportunity in the stock?

Let’s dive in below.

EDA Giant Misses Big on Q4 Guidance

For those unfamiliar with Synopsys, the company is a leading electronic design automation (EDA) software provider. Along with Cadence Design Systems NASDAQ: CDNS, its resources are essential to creating increasingly advanced chips. Notably, Synopsys holds around a 31% share of the EDA market, underscoring its importance to the chip industry.

In fiscal Q3 2025, Synopsys recorded sales of $1.74 billion, a growth rate of 14%, which moderately missed the estimates of $1.77 billion. However, the company’s adjusted earnings per share were much more disappointing, coming in at $3.43. 

This significantly missed Wall Street estimates of $3.80, equating to a 1% drop. However, the company’s fiscal Q4 guidance was what really shook shares. Synopsys expects earnings per share of $2.78 at the midpoint, nearly half of the $4.50 analysts forecasted. The company added valuable context on why this was the case in the conference call.

IP Weakness Hits SNPS Hard, But De-Risked Forecasts Could Lead to Upside

Despite having a strong quarter in its Design Automation segment, Synopsys's smaller but still highly important Design Intellectual Property (IP) segment significantly underperformed. Design IP sales dropped 8%, driven by multiple key issues. This included export restrictions in China and challenges at Intel’s NASDAQ: INTC foundry, a large Synopsys customer.

However, there is reason to believe that the company’s business in China can recover. Synopsys completed its acquisition of Ansys only after the Chinese government approved it. This shows that China wants to work with, rather than against, Synopsys, giving the firm a good chance to continue growing its revenue there. The company’s business with Intel is more concerning, considering the persistently weak performance of its foundry. However, Synopsys says it has now de-risked its Design IP forecasts, both for next quarter and fiscal 2026. This provides an opportunity for the segment to surprise to the upside.

Wall Street Still Sees a Big Time Recovery for SNPS

Although Wall Street analysts lowered their forecasts significantly after Synopsys’s earnings report, their updates weren’t nearly as grave as the stock’s actual move. MarketBeat tracked more than ten analysts who updated their price targets on or after Sept. 10. 

Among them, the average target fell by approximately 14.5%, a fraction of the stock’s 36% fall. This clearly suggested a buying opportunity in the stock. However, what do the numbers say after Synopsys recovered 13%?

Fortunately, Wall Street still sees significant gains to come. The MarketBeat consensus price target of around $585 implies that shares could rise by nearly 34%. Still, it is essential to note that the outlook is slightly less bullish among analysts who updated their price target after the Sept. 9 results. 

Among them, the average price target is $570, implying approximately 30% upside in shares. This amount of upside potential is substantial for a closely followed and fundamental contributor to the semiconductor industry.

Investors should note that even after recovering 13%, shares would need to gain 38% to reach their pre-earnings release price. Furthermore, shares would need to rise 47% to get their 52-week high. Lastly, investors should note that even the least optimistic updated price target tracked by MarketBeat comes in at $510, implying around 16% upside in shares.

Together, these factors and the company’s derisked Design IP forecasts provide the stock with a solid opportunity to recover. Although investors should note that such a recovery could take time, with sentiment still largely depressed.