HSBC upgrades Synopsys stock rating to buy on AI growth outlook

HSBC raised Synopsys Inc.'s stock rating to "buy" from "hold" on Thursday and increased its price target to $700 from $490. Analyst Stephen Bersey set the new target, which is considered a street-high level. The target applies a price-to-earnings (P/E) multiple of 35 times the firm's fiscal 2027 earnings per share estimate of $20.01.

This implies a potential upside of roughly 65%, given Synopsys's current share price of $424.91. The stock trades at a P/E ratio of 75, which InvestingPro analysis indicates as overvalued relative to its fair value. HSBC's revised fiscal 2027 earnings per share forecast surpasses consensus estimates by 13% and is the highest on Wall Street.

The shift in valuation methodology is now 33 times the fiscal 2026 target multiple. The upgrade is attributed to expectations of earnings growth driven by Synopsys's transition toward royalties and anticipated growth in electronic design automation fueled by agentic artificial intelligence. Analyst sentiment is supportive, with 16 analysts revising their earnings forecasts upward for the upcoming period.

Synopsys reported strong fiscal third-quarter 2026 results, surpassing Wall Street expectations with non-GAAP earnings of $3.91 per share on revenue of $2.48 billion. Following this performance, the company also raised its full-year outlook. Benchmark and Baird have both reaffirmed their "buy" ratings for Synopsys, citing positive growth outlooks and price targets.

Morgan Stanley upgraded the stock to "Overweight" from "Equalweight," reflecting increased confidence in the Ansys integration and Design IP recovery. These recent positive developments highlight Synopsys's strong financial performance and favorable analyst sentiment.