rewrite this title Is Synopsys Stock a Buy After the Big Merger with Ansys? – Nanalyze

Let’s face it: Most corporate news is about as exciting as watching paint dry. The more press releases a company issues – touting yet another platform tweak, another blockbuster deal – generally the bigger the yawn, the greater the noise. On the other hand, when a major tech player announces a billion-dollar merger or acquisition, we start paying very close attention. These are the high-risk, high-reward moments that can change a company’s future for good or bad.

For instance, IBM’s acquisition of Red Hat fundamentally transformed the legacy hardware multinational into a serious software competitor overnight. Sometimes these deals blow up before (or even after) they take place. The debacle around Illumina’s failed acquisition of Grail is a case study on how not to do a merger (hint: don’t ignore regulators). Oftentimes, however, we find out later that the acquirer overpaid for the acquiree. This usually results in paper losses through an impairment charge, such as when Exact Sciences had to write off $830 million in value from its $2.2 billion acquisition of Thrive Earlier Detection. The outcome is often also a loss of confidence in company management.

In fact, investors often react negatively to merger and acquisition (M&A) news. Various studies find that big spenders can expect their shares price to drop in the wake of an M&A announcement more often than not. Other research suggests that in the months and years following the completion of such deals, stocks tend to underperform. Of course, these are general trends, mostly based on older MBA-led studies before our current era of mind-boggling, billion-dollar blockbuster deals. Still, we need to be clear eyed when management espouses how “transformational” a deal will be. That brings us to the recently completed $35 billion acquisition of Ansys by Synopsys (SNPS) – and the new company’s really bad third quarter results that most of us have seen by now.

What the Synopsys-Ansys Merger Means

First announced in January 2024, the Synopsys-Ansys deal took about 18 months to complete after the final regulatory approvals (more or less) rolled in by July 2025. It is easily one of the largest tech acquisitions of the last decade, on par with the IBM-Red Hat ($34 billion) and Salesforce-Slack ($28 billion) acquisitions. It is reportedly the biggest transaction ever in the engineering software industry. This so-called silicon-to-systems design platform marries Synopsys’ electronic design automation (EDA) for computer chip architecture with Ansys’ multiphysics simulation capabilities that enable engineers to test real-world interactions involving factors like thermal heat or physical stress. 

Think digital twins for things like electric vehicle power systems. Chip design software helps ensure the AI algorithms can run the thousands of calculations required for optimizing power consumption or predicting battery health. Meanwhile, the simulation software sanity checks the designs by accounting for things like thermal fluctuations or electromagnetic (EM) interference that might disrupt system operation. Previously, these activities occurred in a vacuum: Chip designers assumed ideal operating conditions, while the physics simulation team used simplified models of the electronics. It’s only when the rubber meets the road – tests reveal EM interference causes sensor errors, for example – that problems emerge, requiring costly redesigns and delays. 

The Synopsys-Ansys merger, the theory goes, will integrate these heretofore siloed software suites into one seamless platform. The company has said it expects to generate approximately $400 million in run-rate cost synergies within three years and more than $1 billion in revenue synergies by the end of the decade. Synopsys+Ansys hopes to deliver its first set of integrated EDA and multiphysics capabilities in the first half of 2026. Needless to say, expectations are huge. 

Guidance is Down

So, when Synopsys released its Q3-2025 results earlier this month – the first since the merger was completed – things (specifically, shares of Synopsys stock) went south fast. Synopsys missed analyst estimates for quarterly revenue and earnings, as well as full-year guidance. Analysts expected quarterly revenue of $1.77 billion and earnings of $3.80 per share, but Synopsys reported sales of $1.74 billion (1.60% miss) and earnings of $3.39 per share (11% miss). Analysts estimated full-year revenue of $7.45 billion, but Synopsys is guiding to $7.05 billion at the midpoint (5% miss). That sent shares of Synopsys stock down more than 30% for reasons that weren’t entirely obvious. 

While we normally don’t put much stock (literally) in analysts’ expectations, the 2025 guidance is initially a head scratcher. After all, prior to the merger, the two companies had combined revenues of nearly $8.7 billion. But this is not simple 1+1=2 math. For starters, the guidance excludes a couple of businesses earmarked for divestiture to satisfy regulators. It also only includes a partial year of Ansys-related revenue, leaving out the software simulator’s biggest seasonal month (November) because it falls into Synopsys’ Q1-2026 fiscal calendar. In other words, we’ll need to wait a bit more to get a full financial picture of what this merger means for the company today and into the future.

China and Intel

Instead, the immediate focus for Synopsys is on other challenges, starting with weakness in their intellectual property (IP) segment. While core EDA business grew 23% year-over-year, IP sank by 8% This part of the business revolves around pre-built circuit blocks that customers can license and integrate into their chips, like USB controllers, memory interfaces, or security modules. Ostensibly, the weakness was due to a temporary export restriction in China and a major foundry customer (aka, Intel) fumbling the ball. Management also conceded it had taken its eyes off the ball amid the massive effort required to bring the Ansys deal across the finish line (to further mix sports metaphors).

However, not all of this is temporary. China remains a wildcard, in part thanks to geopolitics, leading to ongoing customer uncertainty over multi-year commitments. Intel remains something of a mess. But now that the U.S. government owns a 10% stake, nothing else could possibly go wrong, right? Right? Ideally, Synopsys can de-risk its portfolio by shifting its exposure away from both China and Intel. The former is something the Ansys acquisition should help accelerate given its greater exposure in Europe (about 25%) versus China (5%). 

Post-Merger Moves

As we alluded to at the beginning of this article, any merger itself is not without risk, despite its “transformational” potential. In the case of Synopsys, we could sum it up as you’ve got to spend money to save money. Specifically, management is projecting near-term expenses to go up as it absorbs Ansys. The added overhead compresses margins, something that seems to overly rattle analysts. Another wrinkle is the divestiture of two businesses that require sign off from China’s State Administration for Market Regulation, which could delay the integration roadmap of the two companies. 

At this point, no one in the C-suite has revised those lofty $400 million to $1 billion in cost-savings synergies but did say more clarity would be given at the end of the final 2025 quarter. A projected cut of about 10% of the workforce in 2026 certainly suggests that the company is working rapidly to start meeting those goals. However, based on management’s glass-half-full approach in the first half of the year, we would not be surprised if they move the goalposts on us as the euphoria wears off and the grunt work of integration truly begins. There are certainly some big financial motivations to build synergy as soon as possible, starting with $14.3 billion in debt, including a $4.3 billion term loan for the Ansys acquisition. 

Market and Revenue Growth

None of this is to suggest that we are bearish on Synopsys 2.0. Indeed, the company is solidifying its leading market position in an increasingly essential industry, especially in regard to the complex design requirements around artificial intelligence hardware. It is also employing AI to accelerate customer workflows. For example, Synopsys is testing new generative‑AI features with about 20 customers to help their engineers work faster today. The goal is to evolve these tools into “agent engineers” that can eventually do bigger chunks of the work on their own under human oversight.

In addition to the AI boom, which is driving demand for Synopsys’ advanced EDA and newly acquired simulation tools, the company is poised to take advantage of other trends. For instance, the general shift to more complex chip architecture, including 3D configurations to stuff more hardware into less space, demands sophisticated design-simulation workflows. And the Ansys acquisition is not only opening up new geographic markets, but new industrial markets beyond traditional semiconductors, such as automotive and aerospace. 

Management claims its new silicon-to-systems platform has a total addressable market (TAM) of $31 billion. That sounds pretty significant – and it is! – until you consider that with annualized revenues of about $7 billion, Synopsys has already captured about 22.5% of the current TAM. In addition, the company estimates its new combined market (Synopsys+Ansys) will grow at an estimated 13% annually, yet projects its revenue growth will outpace TAM growth. 

In the longer term, that means that revenue itself will eventually grow more slowly as Synopsys runs out of runway, unless it unlocks new markets or develops alternative business models. Ansys is already helping with the former while the company works to expand the latter. Currently, it operates a sort of hybrid business model that combines traditional software licensing and modern software as a service (SaaS) approaches. It sells multi‑year, time‑based, and term licenses recognized ratably like SaaS firms but also offers on‑premise deployments for security‑sensitive chipmakers. There is also a growing cloud, pay‑per‑use tier called FlexEDA. Finally, Synopsys may potentially add a royalties fee for IP licensing to bolster recurring revenues on these customers.

Conclusion

Today, shares of Synopsys are trading at a simple valuation ratio ($78 billion market cap/$7 billion annualized revenue) of 11. That’s less than twice the SVR of our Nanalyze Disruptive Tech Stock catalog average – and yet a seemingly reasonable valuation for investors who believe that the company is as essential to today’s AI-driven digital revolution as NVIDIA. No one can predict how long this window of opportunity will remain open to buy shares of Synopsys at these valuations, or if they’ll fall even further as the acquisition goes pear shaped. Predicting the future is futile. With management forecasting continued uncertainty and volatility into 2026 as the dust settles on the merger, savvy investors should use dollar-cost averaging to smooth out the volatility.