By Mackenzie Tatananni

Synopsys stock was headed for its worst same-day percent decrease on record on Wednesday. Blame fiscal third-quarter earnings.

Sysnopsys reported adjusted earnings of $3.39 a share, missing the $3.80 a share analysts had forecast, while sales of $1.74 billion came in below the $1.77 billion Wall Street had forecast, according to FactSet.

CEO Sassine Ghazi noted on the earnings call that an 8% drop in revenue within the company's semiconductor intellectual property, or IP, business drove underperformance in the quarter.

"We had the expectation of deals that did not materialize," Ghazi explained. The CEO cited U.S. export restrictions that disrupted design starts in China, compounding existing weakness in the market.

Shares plunged 34% to $401.50 in morning trading Wednesday, on pace for the largest same-day percent decrease on record, according to Dow Jones Market Data.

Lest that seem too harsh, there were more issues at play during the quarter. In addition to internal resourcing issues, Ghazi indicated that "challenges at a major foundry customer" would continue to weigh on results for the rest of the year.

That customer is likely Intel, Baird analysts posited in a note Wednesday. Synopsys has previously disclosed its longstanding relationship with the chip maker, and the companies expanded their partnership in 2023.

On the heels of the latest quarterly report, Baird analysts downgraded Synopsys to Neutral from Buy, citing the below-consensus outlook as well as "muted" expectations for intellectual property growth in fiscal 2026.

"It is not our preference to downgrade stocks into weakness, but this update and lack of forward visibility create overhang that likely takes time to clear," the Baird team wrote.

In the firm's view, high expectations around design automation fundamentals and Ansys, the simulation giant Synopsys acquired this year, are being countered by material changes in the design IP outlook.

"We acknowledge that Synopsys is still an elite franchise in chip development, and historically this has found support following abrupt weakness," analysts conceded. "Most episodes of sharp one-day underperformance have reversed over the next 12 months."

The outlook was considerably more negative at BofA Securities, where analysts double-downgraded Synopsys from to Underperform from Buy and slashed their price target to $525 from $625.

The headwinds outlined by management are likely company-specific, as Synopsys has relied more on IP than peer Cadence Design Systems, the BofA team wrote. Cadence remains the firm's top pick in the electronic design automation sector, due to its "cleaner growth outlook."

For the current quarter ending Oct. 31, Synopsys sees adjusted earnings of $2.78 a share on sales of $2.25 billion. Analysts were looking for earnings of $4.50 a share on sales of $2.01 billion.

While the results broadly missed consensus estimates, Synopsys saw strength in its design automation segment. Revenue grew 23% year over year, in part due to a $77 million contribution from Ansys.

In a miserable quarter, however, that might have been the only bright spot.

Write to Mackenzie Tatananni at mackenzie.tatananni@barrons.com

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September 10, 2025 10:49 ET (14:49 GMT)

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