SNPS Synopsys
Durable EDA duopoly with an Ansys kicker, but the price already assumes near-flawless compounding.
The story
Synopsys is one half of the EDA duopoly with Cadence. Chipmakers cannot design without its tools and IP, so switching costs are very high. The Ansys acquisition adds multiphysics simulation, plus cross-sell and synergy upside, and AI-driven chip complexity extends the growth runway. It is a mature franchise that is still compounding at double digits, but it now carries acquisition debt and a large goodwill base.
GAAP margin of 20% is depressed by Ansys intangible amortization (D&A is $1.81B against $0.19B of capex). The economic margin moves toward the high 30s, consistent with Cadence and Synopsys's own pre-deal non-GAAP margins. The trailing 0.23 sales-to-capital reflects one-time acquisition goodwill, not the incremental organic reinvestment needed, so I use 1.2. A 12-year horizon fits a durable duopoly moat with an AI and systems-design runway.
Value drivers
| Revenue growth (Y1) | 12.0% |
| Terminal growth | 4.0% |
| Forecast horizon | 12y |
| Target operating margin | 37.0% |
| Years to target margin | 6 |
| Sales-to-capital | 1.20 |
| Beta | 1.10 |
| Failure probability | 2.0% |
| Cost of capital (WACC) | 10.1% |
| Terminal WACC | 9.7% |
Valuation bridge
| PV of explicit FCFF | 27.81B |
| PV of terminal value | 28.33B |
| Equity value | 44.63B |
| ÷ shares → per share | $232.91 |
News
bullish +0.60 · 8 articles
- Synopsys (SNPS) vs Cadence (CDNS): Which is a Better Stock to Buy?
- Synopsys Investor Day Lifts 2030 Growth Outlook on AI, IP and Ansys Synergies
- How Low Can Autodesk (ADSK) Stock Go?
- Which Gives You More Of Hard-To-Replace Software, PTC Or Fair Isaac?
- Synopsys signs $1B+ multi-year custom silicon IP agreement with AWS
- Synopsys and Amazon Sign Multi-Year Silicon IP Agreement Valued at More Than $1 Billion
- AWS signs $1B+ chip design licensing deal with Synopsys
- The Reason To Buy Autodesk Stock
Projected free cash flow to the firm
| Yr | Revenue | Growth | Margin | NOPAT | Reinvest | FCFF | PV |
|---|---|---|---|---|---|---|---|
| 1 | 10.55B | 12.0% | 23.2% | 2.35B | 941.65M | 1.41B | 1.28B |
| 2 | 11.74B | 11.3% | 25.9% | 2.92B | 990.73M | 1.93B | 1.59B |
| 3 | 12.97B | 10.5% | 28.7% | 3.57B | 1.03B | 2.54B | 1.91B |
| 4 | 14.25B | 9.8% | 31.5% | 4.30B | 1.06B | 3.24B | 2.21B |
| 5 | 15.54B | 9.1% | 34.2% | 5.11B | 1.08B | 4.03B | 2.49B |
| 6 | 16.84B | 8.4% | 37.0% | 5.98B | 1.08B | 4.90B | 2.75B |
| 7 | 18.13B | 7.6% | 37.0% | 6.44B | 1.07B | 5.37B | 2.74B |
| 8 | 19.38B | 6.9% | 37.0% | 6.88B | 1.04B | 5.84B | 2.70B |
| 9 | 20.58B | 6.2% | 37.0% | 7.31B | 998.37M | 6.31B | 2.65B |
| 10 | 21.70B | 5.5% | 37.0% | 7.71B | 935.37M | 6.77B | 2.59B |
| 11 | 22.73B | 4.7% | 37.0% | 8.07B | 854.87M | 7.22B | 2.50B |
| 12 | 23.64B | 4.0% | 37.0% | 8.39B | 757.55M | 7.64B | 2.41B |
Key risks
- Ansys integration and synergy shortfall while net debt sits at $10.6B
- Semiconductor capex/design-start cyclicality and China export restrictions
- Valuation already prices sustained double-digit growth and margin expansion
Catalysts
- 2030 targets from Investor Day lifting the growth and margin outlook
- AI-driven chip/system design complexity boosting EDA and IP demand