Synopsys in focus as Morgan Stanley ups price target on AI hopes

• Synopsys (SNPS) was in focus on Tuesday as Morgan Stanley upped its price target on the electronic design automation firm, citing the coming benefit from artificial intelligence.
• Shares fell 0.8% in premarket trading.
• “Synopsys trades on just 25x FY27 EPSe despite an 18% share price rise over the last month, well below its five-year average one-year forward P/E of 36x,” Morgan Stanley analyst Lee Simpson wrote in a note to clients. “We do not see this discount as warranted given AI-driven expansion of the EDA TAM and the emergence of a consumption-based model alongside the existing license-based model. At last month's investor day, management outlined 3 AI frameworks: 1) Full Stack, 2) Customer Owned Platforms and Agents, and 3) Frontier Models (see more detail in From Narrative to Execution). While management [has] reiterated that these remain at an early stage, with limited visibility on earnings accretion, we think they meaningfully expand Synopsys' addressable market. In our view, the next step to a re-rating is execution. We see the key checkpoints as delivery of investor day targets, evidence of broadening customer partnerships, and management commentary of earnings accretion from each AI platform.”
• Simpson raised his price target on Synopsys to $574 from $550 and reiterated his Overweight rating on the stock.

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