Synopsys Inc. (NASDAQ: SNPS) experienced a devastating trading session on September 10, 2025, with shares plummeting over 34% to around $398.43 after the electronic design automation company reported disappointing third-quarter fiscal 2025 results.
The stock collapse represents one of the most severe single-day declines in the company’s history, triggered by earnings misses, significant weakness in its intellectual property business, and challenges related to China’s export restrictions. Bank of America responded swiftly by downgrading the stock from Buy to Underperform, cutting its price target from $625 to $525, citing persistent headwinds and integration costs from the recent $35 billion Ansys acquisition.
Synopsys Earnings Performance Disappoints Across Key Metrics
Synopsys reported third-quarter fiscal 2025 revenue of $1.74 billion, representing a 14% year-over-year increase but falling short of analyst expectations of $1.77 billion. More concerning was the company’s non-GAAP earnings per share of $3.39, which significantly missed Wall Street’s consensus estimate of $3.74-$3.80. The company delivered a non-GAAP operating margin of 38.5% with free cash flow of approximately $632 million, while maintaining $2.6 billion in cash and short-term investments.
The earnings miss was particularly striking given the company’s historical track record of meeting or exceeding analyst expectations. Management attributed the shortfall to a combination of factors including the timing of revenue recognition, integration costs from the Ansys acquisition, and unexpected challenges in key business segments.
The company’s fiscal 2025 guidance also disappointed, with management projecting revenue between $7.03 billion and $7.06 billion and EPS of $12.76 to $12.80, both below Wall Street expectations of $12.83 EPS on $7.05 billion in revenue.
Looking ahead to Q4 fiscal 2025, Synopsys guided for revenue between $2.23 billion and $2.26 billion with non-GAAP EPS projected at $2.76 to $2.80, both figures falling below analyst expectations. This conservative guidance reflects management’s cautious outlook amid ongoing challenges in the IP business and potential headwinds from geopolitical tensions affecting its China operations.
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IP Business Weakness and China Export Restrictions Drive Decline
The most significant factor behind Synopsys’ disappointing performance was the dramatic weakness in its Design IP business, which declined 8% year-over-year to $428 million in Q3. According to analysts, the company missed approximately $140 million of expected IP revenue in the quarter, primarily due to U.S. export restrictions affecting design starts in China and challenges with a major foundry customer that historically represented about 12% of sales. The IP segment’s underperformance was particularly concerning given its typically high-margin nature and strategic importance to the company’s long-term growth strategy.
CEO Sassine Ghazi acknowledged that resource allocation and roadmap decisions in the IP unit did not yield the intended results, prompting a strategic pivot toward higher-growth opportunities. The company had invested heavily in building IP solutions for a major foundry customer, expecting significant returns in the second half of fiscal 2025, but the customer ultimately pulled out due to market challenges. This setback, combined with the broader impact of China’s export restrictions, created a perfect storm that undermined the segment’s performance and investor confidence.
In response to these challenges, Synopsys announced plans to reduce its global headcount by approximately 10% by the end of fiscal 2026 to improve operational efficiency. The company is also shifting focus toward more customized IP solutions, which management believes could provide total addressable market upside.
Still, it requires near-term IP library adjustments that will mute the FY26 IP outlook. Bank of America analysts noted that investor positioning in the stock looks “very crowded,” suggesting limited downside protection when negative news emerges.
Synopsys Stock Plummets
As of 10:35 AM EDT on September 10, 2025, Synopsys shares were trading at $398.43, down $205.94 or 34.08% from the previous close of $604.37. The dramatic decline erased billions in market capitalization, with the company’s market cap falling to approximately $73.9 billion. The stock opened at $427.80 and has traded in a range of $390.15 to $429.64 during the session, with volume surging to over 8.4 million shares compared to the average daily volume of 1.6 million shares.
The sell-off represents one of the most severe single-day declines in Synopsys’ recent history, extending the stock’s year-to-date decline to approximately 17.7% and pushing the one-year return into negative territory at -14.2%. Prior to the earnings announcement, the stock had been trading near its 52-week high of $651.73, making the current decline even more pronounced for investors who had maintained positions at elevated levels.
Bank of America’s downgrade to Underperform from Buy, along with the reduced price target of $525, reflects growing concerns about the company’s near-term prospects. Analysts cited three primary factors for the downgrade: surprising restructuring required in the core IP business with muted FY26 growth, persistent uncertainty regarding foundry potential at top customer Intel, and higher initial integration costs from the $35 billion Ansys acquisition.
Despite the challenging outlook, analysts maintain that Synopsys remains a high-quality company, but uncertainty over fiscal 2026-2027 performance and benefits from the Ansys acquisition could create persistent headwinds for the stock.
Disclaimer: The author does not hold or have a position in any securities discussed in the article. All stock prices were quoted at the time of writing.
About the author
Tim Fries is the cofounder of The Tokenist. He has a B. Sc. in Mechanical Engineering from the University of Michigan, and an MBA from the University of Chicago Booth School of Business. Tim served as a Senior Associate on the investment team at RW Baird’s US Private Equity division, and is also the co-founder of Protective Technologies Capital, an investment firm specializing in sensing, protection and control solutions.