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On Thursday, BofA Securities analyst Vivek Arya increased the price target for Synopsys stock (NASDAQ:SNPS) to $575 from the previous target of $560, while reiterating a Buy rating on the shares. The stock, currently trading at $462.43, has experienced a significant 8.15% decline over the past week. According to InvestingPro analysis, Synopsys appears slightly overvalued at current levels, though the company maintains impressive gross profit margins of 81.35%. Arya highlighted that Synopsys reported solid second-quarter results for fiscal year 2025, with sales that met expectations and a modest earnings per share (EPS) beat.
Synopsys has stated that it has not received any notification from the Bureau of Industry and Security (BIS) regarding new export restrictions on Electronic Design Automation (EDA) software to China. This announcement comes despite widespread media speculation about potential restrictions prior to the company’s earnings report. However, sales in China have weakened, dropping to $330 million in the first half of 2025, down from $460 million in the same period of 2024. Management has revised its guidance for China, now anticipating a decline in sales for the full fiscal year 2025, as opposed to the previously forecasted growth below the corporate average. Despite these challenges, InvestingPro data shows the company maintains a strong financial position with a healthy current ratio of 2.68 and more cash than debt on its balance sheet.
The company’s performance excluding China has shown resilience. Taking into account one less week in the first half of 2025 due to a fiscal year change, which created an approximate $100 million difference, Synopsys’ sales outside of China have increased by approximately 7% on a rolling four-quarter basis. This is in contrast to a total growth rate of 4%, both of which fall short of the 12% to 15% compound annual growth rate (CAGR) for the EDA/IP Total (EPA:TTEF) Addressable Market (TAM) projected by Synopsys in 2024.
Despite these challenges, Synopsys remains on track to deliver approximately 11% growth in fiscal year 2025. The company has reaffirmed its objective to finalize the accretive acquisition of Ansys (NASDAQ:ANSS) by the end of June 2025, with approvals already secured in all regions except China, where discussions are ongoing. Additionally, Synopsys is not concerned about increased competition from its EDA peer Cadence Design Systems (NASDAQ:CDNS) at its largest customer, Intel (NASDAQ:INTC), which accounts for 12% of its sales, even after Intel’s recent management changes.
In conclusion, Arya has slightly adjusted the projected pro forma EPS for Synopsys upward by 1% for fiscal years 2025, 2026, and 2027. The price objective has been set at $575 based on an unchanged 33 times the estimated price-to-earnings (P/E) ratio for calendar year 2026, as Synopsys continues to benefit from trends in semiconductor research and development and increasing chip complexity. InvestingPro reveals the company’s strong fundamentals with revenue growth of 8.51% and an impressive return on assets of 17.69%. Subscribers can access 15 additional ProTips and a comprehensive Pro Research Report, offering deep insights into Synopsys’s valuation, financial health, and growth prospects.
In other recent news, Synopsys Inc . reported its second-quarter 2025 earnings, showcasing a robust financial performance. The company exceeded expectations with a non-GAAP earnings per share (EPS) of $3.67, surpassing the forecasted $3.39. Revenue for the quarter was $1.6 billion, aligning with projections and marking a 10% year-over-year increase. Synopsys highlighted significant growth in its Design IP segment, which rose by 21% to $482 million. The company reaffirmed its full-year revenue guidance, projecting between $6.745 billion and $6.805 billion, with anticipated continued growth driven by demand in AI and high-performance computing sectors.
Furthermore, Synopsys is working towards closing its acquisition of Ensys, pending regulatory clearance in China. The company is actively negotiating with Chinese regulators, with expectations to finalize the deal in the first half of the year. Additionally, Synopsys addressed concerns about potential export restrictions, noting that they have not received any notice from the Bureau of Industry and Security (BIS). Despite potential challenges, Synopsys remains confident in its strategic focus on AI-powered design tools and its ability to navigate regulatory landscapes.
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