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Synopsys Inc. SNPS stock has lost 6.8% over the past month, underperforming the Zacks Computer - Software industry's decline of 4.9%. This underperformance raises the question: Should investors cut their losses and exit, or is it worth holding on to? While the near-term headwinds are real, the long-term growth story for Synopsys remains intact, making a strong case for holding the stock.
Synopsys One Month Performance Chart
Image Source: Zacks Investment Research
Reason Behind Synopsys Stock’s Underperformance
Several factors have played a role in SNPS’ decline, including broader market weakness and mounting fears over additional tariffs that have the potential to raise costs. The additional tariff of 10% on all imports from China, which has been implemented by the U.S. government and previously enforced export controls and entity list restrictions toward China by the U.S. Department of Commerce, has also weighed on investor sentiments. For Synopsys, revenues from its business in China have accounted for more than 15% of its total revenues in 2024, 2023 and 2022.
Moreover, slowing growth at Synopsys Design Automation segment, which has been the key growth driver of its business, has added to investors’ concerns. In the first quarter of fiscal 2025, sales from this segment grew 3.5% year over year, reaching $1.02 billion. Although this reflects growth, this rise is considerably lower than the double-digit growth rates SNPS had been posting in prior years.
The stagnation in this core segment casts uncertainties because SNPS’ electronic design automation tools are fundamental to the semiconductor design process. A loss of momentum in this segment could signal challenges in maintaining the company's competitive advantage.
The drop in segmental revenue is partly due to economic uncertainties, as semiconductor companies cut research and development spending due to fears of economic slowdown. This slowdown has left investors questioning whether the company can sustain its past growth trajectory reflected in its stock price.
Synopsys is Leveraging AI to Accelerate its Recovery
Although Synopsys faces macroeconomic and regulatory challenges at present, the company is using this time to drive long-term value. Synopsys is tapping into several major trends that have the potential to drive demand for its products over the next decade, particularly in the AI-driven semiconductor design space.
Synopsys’ AI-powered tool, VSO.ai, was developed to provide faster verification times and improved design accuracy. This solution will serve as an advanced design tool, enabling chip manufacturing companies to quickly meet the enormous demand for more sophisticated chips.