TLDR
- Morgan Stanley upgraded Synopsys (SNPS) to Overweight from Equal-Weight with a $500 price target.
- The upgrade follows greater confidence in synergies from the Ansys integration and Design IP recovery.
- Morgan Stanley sees physical AI as an underappreciated opportunity for Synopsys’ portfolio.
- Synopsys beat Q3 2026 earnings expectations with non-GAAP EPS of $3.91 on revenue of $2.48 billion.
- Baird also upgraded SNPS to Outperform, raising its price target to $560.
Synopsys (SNPS) received a vote of confidence from Morgan Stanley on Tuesday, as the firm upgraded the stock to Overweight from Equal-Weight and kept its price target at $500.
Analyst Lee Simpson made the call as part of a broader shift in how Morgan Stanley is approaching the semiconductor space. “With DRAM approaching a late-cycle inflection and valuation dispersion widening, we turn more selective,” Simpson wrote.
SNPS was trading around $393.84 at the time of the note, down about 5.4% on the day, which Morgan Stanley flagged as an attractive entry point following recent weakness.
The firm had previously moved Synopsys to Equal-Weight earlier this year while waiting for more clarity on three things: profitability from the Ansys deal, a return to double-digit EDA growth, and proof that the co-design offering matters strategically.
Morgan Stanley says it now has enough confidence on those fronts to move back to Overweight.
Ansys Integration and Physical AI
A key part of the thesis is the Ansys integration. Synopsys launched Multiphysics Fusion in Q3, the first joint solution from the two companies, and Morgan Stanley sees room for management to update revenue synergies at the upcoming investor day.
The firm also believes the market is underestimating how well Synopsys’ portfolio fits the physical AI era. Simpson pointed to simulation tools that assess thermal dynamics, mechanical stress, and fluid dynamics as particularly relevant to closing the sim-to-real gap.
The new Factory 2 IP model, a customized IP product aimed at hyperscalers and ASIC makers needing bespoke solutions, is another area Morgan Stanley expects management to highlight.
Synopsys posted 46% revenue growth over the last twelve months and carries a gross profit margin of 83%. According to InvestingPro, the stock currently trades below its estimated fair value.
Q3 Beat and Other Analyst Moves
Synopsys’ fiscal Q3 2026 results came in ahead of expectations. The company reported non-GAAP EPS of $3.91, topping the $3.67 consensus, on revenue of $2.48 billion versus the $2.44 billion expected.
The company also raised its full-year outlook following the quarter. Benchmark reaffirmed its Buy rating, with analyst Gary Mobley calling it a “beat-and-raise” quarter.
Baird separately upgraded Synopsys to Outperform from Neutral, lifting its price target to $560. Baird cited a promising growth outlook for fiscal 2027 and expects a return to double-digit organic revenue growth.
Morgan Stanley on the same day downgraded Infineon (IFNNY) to Equal-Weight from Overweight, cutting its price target to €65 from €81. The firm also trimmed targets on ASML to €1,700 from €1,930 and BE Semiconductor to €220 from €260.
Simpson noted on Infineon that “PSS estimates look too high and several emerging risks leave us without a clear catalyst.”
Morgan Stanley’s $500 price target on SNPS remains unchanged from its previous estimate.
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