Synopsys, Inc. (SNPS): A Bull Case Theory 

We came across a bullish thesis on Synopsys, Inc. on Compounding Your Wealth’s Substack by Sergey. In this article, we will summarize the bulls’ thesis on SNPS. Synopsys, Inc.’s share was trading at $480.00 as of January 29th. SNPS’s trailing and forward P/E were 63.36 and 35.59 respectively according to Yahoo Finance.

Synopsys, Inc. provides electronic design automation software products used to design and test integrated circuits. SNPS is emerging as a compelling investment as it navigates near-term pressures while building a stronger, more diversified engineering platform. Despite absorbing restructuring costs and the Ansys acquisition, the company posted gross margins of 82% and EBITDA margins of 28%, driven by a richer software mix and maintenance and services revenue that surged nearly 149% year over year.

Recurring revenue now represents 81% of total revenue, and RPO reached $11.4 billion, up over 40%, highlighting a sticky, high-quality revenue base. FY26 guidance reflects confidence, with revenue near $9.6 billion, operating margin approaching 40.5%, and EPS expected in the mid-14s, signaling significant margin expansion potential.

Segment performance is strong in design automation, and the Ansys combination materially broadens the long-term growth runway, with multi-physics solutions and joint offerings targeting advanced packaging and 3D-IC markets. NVIDIA’s $2 billion strategic partnership accelerates the AI-driven engineering narrative, positioning Synopsys to capitalize on agentic design, accelerated compute, and tighter hardware–software integration. While China weakness and IP headwinds create near-term pressure, leadership has de-risked guidance, reflecting a realistic view of the market.

Cash generation remains robust, with FY25 free cash flow at $1.35 billion and FY26 projected near $1.9 billion, supporting aggressive debt repayment with the remaining $2.55 billion expected cleared by mid-2026. With recurring revenue growth, expanding margins, AI-aligned innovation, and a de-risked outlook, Synopsys offers an attractive risk/reward opportunity. Investors could benefit from both operational leverage and strategic catalysts, making the stock well-positioned for upside as the broader engineering ecosystem increasingly shifts toward complex, AI-enabled design solutions.

Previously we covered a bullish thesis on Synopsys, Inc. (SNPS) by The Equity Analyst in February 2025, which highlighted the company’s leadership in electronic design automation, recurring revenue base, and strong positioning in AI and chiplet architectures. The company’s stock price has depreciated by 9.66% since our coverage. Sergey shares a similar bullish perspective but emphasizes near-term pressures, the Ansys acquisition, and FY26 guidance.

Synopsys, Inc. is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 83 hedge fund portfolios held SNPS at the end of the third quarter which was 66 in the previous quarter. While we acknowledge the risk and potential of SNPS as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than SNPS and that has 10,000% upside potential, check out our report about this cheapest AI stock.

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Disclosure: None.