A business model transition might provide a much-needed earnings boost for Synopsys as it faces disruption from artificial intelligence, HSBC wrote Friday.
HSBC upgraded Synopsys to Buy from Hold and raised its price target for the stock to $700 from $490, representing 69% upside from its closing price of $413.06 on Thursday.
Analysts cited a decision by CEO Sassine Ghazi for the company to shift from a traditional "build once, sell many" licensing model to one that includes royalties. Synopsys customers would pay the company for the right to use its chip technology and then continue paying fees under the new structure.
That change could drive "significant" earnings growth, and further integration of AI agents into Synopsys' tools would provide an uplift for revenue, analysts said. They projected the moves to result in 28% annualized earnings growth from fiscal 2026 through fiscal 2028, up from 7% between fiscal 2024 and fiscal 2026.
It's the latest sign of growing optimism for Synopsys. BNP Paribas upgraded Synopsys to Neutral from Underperform on Thursday, citing an improvement of competing headwinds from Intel and China.
Synopsys' integration of Anysys, the engineering software platform it acquired last year, is "progressing well," BNP Paribas analysts wrote.
Wall Street is looking ahead to Synopsys' investor day event on Sept. 30. Mizuho analysts said the function could be an "important catalyst" as it reiterated an Outperform rating on Monday, suggesting Synopsys executives will reinforce that execution challenges in fiscal 2026 are "largely behind."
Synopsys management may raise guidance at the event, Morgan Stanley analysts wrote, but they noted higher targets alone are "unlikely to restore market confidence." The company has an opportunity to address AI disruption concerns, analysts said.
Shares of Synopsys were unchanged on Friday. The stock is down 6% this year and 18% from its 52-week closing high of $534.56, according to Dow Jones Market Data. The Nasdaq Composite and S&P 500 were flat in comparison.
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