Needham lowers Synopsys stock price target to $550 on IP weakness

Investing.com - Needham lowered its price target on Synopsys (NASDAQ:SNPS) to $550.00 from $660.00 on Wednesday, while maintaining a Buy rating on the semiconductor design software company. According to InvestingPro data, Synopsys currently trades at a high P/E ratio of 68.9x, with impressive gross profit margins of 81.1%.

The price target reduction follows what Needham described as a "mixed quarter" for Synopsys, with weakness in the company’s intellectual property (IP) business contributing to significant underperformance. The disappointing results come after Synopsys completed its acquisition of Ansys in mid-July.

Needham expressed surprise that two previously identified risk factors—China exposure and Intel-related challenges—continue to impact Synopsys’ performance. Despite these ongoing headwinds, the firm believes these issues will eventually resolve.

The research firm indicated its primary focus will be on Synopsys’ transformation of its IP business model toward "larger IPs" such as subsystems and chiplets, and the resulting impact on margins. Needham drew comparisons to ARM’s success in commanding higher prices from customers.

Needham reduced its fiscal year 2026 estimates for Synopsys but recommended investors buy the stock on weakness, suggesting confidence in the company’s long-term prospects despite near-term challenges.

In other recent news, Synopsys reported third-quarter revenue of $1.74 billion, falling short of the consensus estimate of $1.77 billion. The company’s adjusted earnings per share were $3.39, below the expected $3.80. Despite these results, Mizuho maintained an Outperform rating with a $700 price target, noting strong performance in Synopsys’ design automation segment, which saw a 23% year-over-year growth. Rosenblatt downgraded Synopsys from Buy to Neutral, citing weaker-than-expected performance in the company’s IP business and adjusted its price target to $605. Stifel also reduced its price target to $550, maintaining a Buy rating due to concerns over Design IP weakness. Wolfe Research lowered its price target to $540 while keeping an Outperform rating. Baird downgraded Synopsys to Neutral, adjusting its price target to $535, pointing to concerns about Design IP challenges and issues related to China restrictions. These developments reflect varying analyst perspectives on Synopsys’ recent performance and future prospects.

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