Bank of America makes a surprise call on 39-year-old software stock
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The fear that artificial intelligence is a bubble is prompting some investors to turn towards non-AI companies, which appear to be safer bets. If you are looking for stock that falls in the middle ground, meaning it is both lower beta and AI-levered, then the company we will be discussing should be of interest to you.The largest provider of electronic design automation (EDA) software and the 2nd largest supplier of semiconductor intellectual property, Synopsys reported its Q4 earnings on December 10.During the earnings call, Sassine Ghazi, president and CEO of Synopsys, said:Here are the Synopsys Q4 earnings highlights:Revenue of $2.255 billion, compared to $1.635 billion in Q4 2024Gross margin of $1.6 billion, compared to $1.26 billion in Q4 2024Net income attributed to Synopsys of $448,696 million, compared to $1.114 billion in Q4 2024Diluted net income per share of $2.39 compared to $7.14 in Q4 2024 Source: Synopsys Q4 earnings release The company stated that it expects fiscal year 2026 revenue of $9.610 billion at the midpoint, including $2.9 billion of expected Ansys revenue, and reflecting the impact of approximately $110 million from the divested Optical Solutions Group and PowerArtist RTL businesses. Synopsys revenue reached $2.255 billion in Q4 2025, compared to $1.635 billion in Q4 2024.Photo by NurPhoto on Getty Images Bank of America upgrades Synopsys stock, raises price targetBank of America analysts Vivek Arya and his team updated their opinion on Synopsys (SNPS) stock, following the release of the earnings report.The team wrote: “We believe the relative derisking of China and Intel sales along with strong growth at Ansys clears the decks for Synopsys to provide attractive stock catch-up potential and EPS beats for the next year.” Analysts noted that the non-GAAP EPS guidance provided by the company for the full fiscal year 2026, at $14.36 midpoint, is well ahead of consensus at $14.11.Related: Bank of America resets Amazon stock forecast after key meetingThey raised their fiscal year 2026/2027 non-GAAP EPS estimates to $ 14.37 and $17, respectively.
The team stated that while the stock may consolidate at current levels after the recent approximately 20% run, they believe it offers an attractive, lower-beta, AI-levered candidate with recurring sales tied to more resilient chip design and R&D spending.Analysts noted that their top pick in EDA stocks remains Cadence (CDNS).In a research note shared with TheStreet, Arya changed the rating for Synopsys stock from neutral to buy and raised the target price from $500 to $560, based on a 32 multiple of his estimate for the price-to-earnings ratio for 2027.Analysts noted downside risks for Synopsys to their price objective:Variability in IP/hardware sales, creating issues in the timing of revenue recognition,Competitors developing unique software capabilitiesHeightened geopolitical tensions leading to further restrictions on supplyingfirms in China with EDA technology,Uncertainty over the integration of the recent M&A transaction,Exposure to Intel headwindsSynopsys' upside risks are:Share gains in existing markets versus primary competitors,Increased government investment in semiconductor R&D and developmentMaterial M&A that enables consistent margin expansionFaster-than-expected cost improvements driving a higher operating margin.Synopsys recent activityNVIDIA and Synopsys are integrating NVIDIA’s AI and accelerated computing with Synopsys’ engineering solutions to provide R&D teams with tools to design, simulate, and verify AI products more efficiently.In addition, NVIDIA invested $2 billion in Synopsys common stock at a purchase price of $414.79 per share.More Tech Stocks:Investors hope good news from Nvidia gives the rally more lifePalantir CEO Karp just settled major debateSpotify just solved a major problem for listenersAmazon lawsuit could be a warning to other employersJensen Huang, founder and CEO of NVIDIA, stated: “Our partnership with Synopsys harnesses the power of NVIDIA accelerated computing and AI to reimagine engineering and design — empowering engineers to invent the extraordinary products that will shape our future.”Synopsys, along with its partners at Microsoft Ignite, unveiled a simulation-driven framework for optimizing dynamic manufacturing processes in real-time.The platform was first deployed by Krones, and the framework was used to create a virtual assembly line of its fully integrated packaging and bottling line systems, with optimization outputs accounting for critical variables, such as bottle shape, liquid viscosity, and fill level.Key benefits of the Synopsys/NVIDIA framework include:Real-time scenario comparison and optimizationSmarter resource allocationEnhanced collaboration between engineering, operations, and R&D teamsRelated: What the White House decision really means for Nvidia