Key action
S&P Global Ratings said today it has moved its outlook on Synopsys Inc. (NASDAQ:SNPS) to positive from stable and simultaneously reaffirmed the company’s BBB issuer and debt rating. The agency pointed to a reduction in leverage to 2.3x, a level it described as approaching the low-2x threshold for an upgrade.
Debt reduction and sources of funding
S&P noted Synopsys has taken concrete steps to lower the debt burden incurred around its acquisition of Ansys, repaying $4.3 billion of the $14.3 billion of acquisition-related debt. The company also applied proceeds from a $2 billion investment by Nvidia toward additional debt reduction. S&P said these moves support Synopsys’ plan to create capacity for future acquisitions while targeting a net leverage ratio below 1x.
Outlook and leverage forecasts
The rating agency projects Synopsys’ leverage will decline further, forecasting a ratio of about 1.8x in fiscal 2026 and roughly 1.2x in fiscal 2027. S&P added that it expects Synopsys to build a financial cushion over the next two years to enable bolt-on or strategic acquisitions while maintaining disciplined leverage metrics.
Operational performance and revenue trends
S&P acknowledged headwinds in Synopsys’ intellectual property business over the past four quarters that slowed the pace of leverage reduction, but said management has remained disciplined. Pro forma revenue growth in the last quarter was under 6% year over year. The agency anticipates improvement in growth, expecting sequential gains through the rest of 2026 driven by improved pipeline execution, the introduction of new IP titles for AI customers, and a strategic pivot toward higher-value work with hyperscalers developing custom AI chips.
Within electronic design automation (EDA), revenue rose about 8% year over year, a step below the company’s historical growth rates above 10%, with timing of hardware-assisted verification cited as a factor. S&P also observed that the Ansys deal has strengthened Synopsys’ capabilities in system-level design and simulation, noting strong demand for simulation related to AI data-center infrastructure, aerospace and defense, and automotive digital engineering.
Conditions for further rating action
S&P said it could raise Synopsys’ BBB rating within the next 12 to 24 months if the company builds sufficient cushion to pursue acquisitions while keeping leverage no higher than the low-2x area. Conversely, the agency said the outlook could revert to stable should Synopsys pursue acquisitions that leave leverage sustained above the low-2x range or if execution missteps erode its market position.