Synopsys fell sharply Thursday after the chip design company reported a weaker-than-expected outlook.
Synopsys reported adjusted fiscal fourth-quarter earnings of $3.40 a share on revenue of $1.64 billion, with year-over-year gains of 13% and 11%, respectively. Analysts were expecting $3.30 a share on revenue of $1.63 billion. But fiscal Q1 2025 revenue guidance of $1.45 billion at the midpoint was lower than expected.
The company's 2025 outlook also was "a bit weak" at $6.78 billion at the midpoint compared to median view of $6.9 billion, Morningstar analyst Eric Compton said in a client note.
The heightened focus on AI had lifted Synopsys stock. "We build the tools that allow people to build the leading-edge chips," Synopsys Chief Financial Officer Shelagh Glaser told Investor's Business Daily in May.
But the company's forecast appears to have spooked investors. Synopsys stock, which moved an aggressive entry on Wednesday just ahead of results, plunged nearly 12% Thursday to below its 50-day and 200-day moving averages.
Synopsys rival Cadence Design Systems shed more than 5%, just undercutting a buy point.
However, some analysts remained optimistic about Synopsys.
"We also reiterate our belief in key tailwinds driving double-digit percentage revenue growth for years to come, including increasing silicon proliferation, robust demand from systems companies, and increasing demand from artificial intelligence chip design starts," Compton wrote. He raised his price target to $550 from $490.
Needham's Charles Shi, who has a buy rating and a $640 price target, said the stock slide signals an opportunity.
"While the print is imperfect, we think the pullback will create another buying opportunity for investors who missed the postelection rally in Synopsis," he said in a client note.
