Morgan Stanley lowered its view on Synopsys, downgrading the stock to Equal-weight from Overweight and cutting its price target to $480 from $550, a move that coincided with a roughly 2% decline in premarket trading on Friday. The brokerage cited an ongoing deceleration in Synopsys' core electronic design automation (EDA) business and said there remains limited visibility on profit contributions from the company’s AI-led initiatives and the Ansys integration.
Synopsys reported first-quarter revenue of $2.41 billion, representing a 66% increase year over year and landing at the high end of its guidance range. Management attributed part of the quarter’s outperformance to the timing of Ansys-related deals. For fiscal 2026, the company maintained its guidance, forecasting revenue between $9.56 billion and $9.66 billion and non-GAAP EPS in a range of $14.38 to $14.46.
Morgan Stanley’s analysis separates the impact of the Ansys acquisition from Synopsys’ underlying EDA business. The firm estimates that core EDA growth excluding Ansys is progressing at a high single-digit percentage pace and is continuing to slow. Because management left the full-year guide unchanged, Morgan Stanley suggested growth could ease further in the second half absent material wins from new converged products or a pickup in hardware demand.
Within Synopsys’ reporting, hardware delivered a solid quarter, helped by the rollout of new EP-Ready products and a competitive design win with a major AI and high-performance computing customer. The firm also noted an expected improvement in the IP business during the second half of the fiscal year, driven chiefly by gains in interface products.
On the cost and profit side, Morgan Stanley trimmed its fiscal 2027 operating margin estimate to 42.5% from 45%, and lowered its EPS projection to $17.92, reflecting the brokerage’s view of slower growth in areas outside of IP and hardware. The updated 2027 earnings estimate was reduced by 6%, which Morgan Stanley said implies an approximate three-year EPS compound annual growth rate of about 11% from fiscal 2024 through fiscal 2027.
The broker also pointed to several areas of uncertainty that could affect medium-term performance. These include the ramp pace and pricing model for AgentEngineer, and competitive pressures in 3D-IC and physical AI emulation markets. Morgan Stanley indicated that investors are likely to seek more definitive commentary on revenue mix and profitability drivers at Synopsys’ Converge event in March, where management could provide further detail on paths to profitable growth.
Finally, the firm narrowed its one-year forward price-to-earnings range to 30 to 35 times from a prior 35 to 40 times, contingent on receiving clearer evidence of a sustained EDA reacceleration and tangible integration upside from Ansys.
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