Benchmark has initiated formal coverage of the electronic design automation (EDA) software leaders Synopsys (SNPS) and Cadence Design Systems (CDNS), assigning Buy recommendations to both names and highlighting a favorable industry outlook driven by AI-related design requirements and resilient market fundamentals.
The brokerage set a $570 price target on Synopsys and a $450 target on Cadence, noting that those levels imply meaningful upside versus their recent trading prices. Benchmark emphasized that the EDA sector benefits from a duopoly market structure that creates high barriers to entry and strong pricing power, and it said demand is expanding as artificial intelligence increases chip and system design complexity.
Synopsys outlook
For Synopsys, Benchmark expects that AI-enabled design tools, enhanced simulation capabilities and intellectual property offerings will accelerate growth as customers pursue productivity improvements. The firm sees Synopsys positioned to capture a larger share of semiconductor research and development spending, and it identified potential revenue upside from agentic AI innovations, new IP products and synergies associated with the Ansys acquisition.
Benchmark projected Synopsys will report fiscal 2026 revenue of $9.66 billion and non-GAAP earnings per share of $14.76, with operating margin expanding to 41%. The analyst house also forecasted that annual revenue synergies from the Ansys combination could eventually reach $1 billion. Improved free cash flow is expected to provide flexibility to lower debt and to resume smaller, tuck-in acquisitions over time. Benchmark additionally said it expects management to raise fiscal 2026 guidance later this year as industry conditions remain favorable.
Cadence outlook
Benchmark described Cadence as the preferred EDA investment given its execution track record, breadth of products and premium positioning in AI-enabled design software. The brokerage anticipates continued strength across hardware verification, semiconductor IP and simulation tools, supported by solid chip design activity and growing adoption among hyperscalers and system companies that are developing custom silicon.
The firm projected Cadence to deliver 16.6% revenue growth in fiscal 2026, with a non-GAAP operating margin of 44% and EPS of $7.90. Benchmark also indicated it expects Cadence to raise its annual outlook when the company reports second-quarter results later this month.
Market context
Benchmark’s initiation underscores its view that EDA companies stand to gain from structural demand tied to AI and rising design complexity, with limited competition and the ability to sustain pricing power. The brokerage’s forecasts for revenue, margins and potential acquisition synergies form the basis for its Buy recommendations and the stated price targets.
Key points
- Benchmark initiated Buy ratings on Synopsys and Cadence, assigning $570 and $450 price targets respectively.
- Firm cites AI-driven complexity in chip and system design, a duopoly industry structure, and strong pricing power as core drivers.
- Forecasts include Synopsys fiscal 2026 revenue of $9.66 billion and EPS of $14.76; Cadence is projected to grow revenue 16.6% in fiscal 2026 with EPS of $7.90.
Risks and uncertainties
- Realization of the expected $1 billion in annual revenue synergies from the Ansys combination is projected by Benchmark but remains to be achieved - this uncertainty affects Synopsys’ revenue trajectory and related sectors of semiconductor software and IP.
- Benchmark expects managements to raise guidance - for Synopsys later this year and for Cadence alongside second-quarter results later this month - but those guidance increases are anticipatory and not guaranteed, creating short-term earnings and sentiment uncertainty for software and semiconductor-facing markets.
- Timing and magnitude of improved free cash flow and the ability to reduce debt and resume tuck-in acquisitions for Synopsys are forecasted outcomes that could vary, influencing corporate strategy and M&A activity in the EDA and tools sector.