Mizuho Boosts Confidence in Synopsys Stock After Nvidia’s $2B Investment

Coming from a $2 billion investment by the top chip company in the world, Synopsys is getting the type of analyst support that is typically bestowed only upon the AI favorites and who effortlessly power half the semiconductor industry. 

Mizuho reaffirmed their Outperform rating and a $600 price target after Nvidia’s agreement to pump in $2 billion, without any delay. 

Not only did Synopsys get another partner from the industry, but also one of the biggest endorsements in the AI era to date. The target price indicates almost 37% upside at the current price of $438.29, after the 9.13% rise in Synopsys’ stock this week, as per InvestingPro. 

This isn’t just a regular partnership. It’s a strategic merger of the most valuable semiconductor company and the largest electronic design automation (EDA) platform. Also, the timing is right in the middle of the intensifying AI hardware competition, which is definitely not a coincidence.

What the Partnership is Actually Resolving?

The issue here is not the building of AI chips, rather the verifying and simulating of them fast enough. The expanded partnership integrates Synopsys’s engineering and verification tools with Nvidia’s computing and AI engines. 

In other words, Nvidia is aiming to eliminate the obstacles in simulation, physical verification, and advanced chip design, which is the very process that hinders the development of next-gen AI systems.

Also, Nvidia’s capital investment of 4.82 million shares (approximately 2.5% of Synopsys’s diluted share count) is not for exerting influence, but for getting time. Faster design cycles lead to faster GPU iterations, which Mizuho agrees with. 

The investment enables Synopsys to produce AI-accelerated EDA tools in large quantities, thus increasing its total addressable market and sustaining the 81.13% gross margin, which is ranked among the highest in the software industry.

A Wider Perspective

Synopsys is managing more than one plot at the same time.

• ANSYS Integration & Market Confidence: CEO Sassine Ghazi assures that the Ansys merger is on track. It is a very important factor, since investors consider the deal as the basis for future AI design workflows that are driven by simulation.
• Mixed Analyst Outlooks: Wells Fargo has just decreased its target for Synopsys to $445. This is not because of weakness, but because of cautiousness around revenue expectations, with a prediction of $9.7B revenue and $14 EPS by FY2026.
• Leadership Shifts: The hiring of the former Siemens EDA chief Mike Ellow as CRO, indicates that Synopsys intends to be very active in its GTM execution, particularly as Nvidia strengthened tools get close to commercialization.
• Efficiency Push & Restructuring: After the Ansys acquisition, Synopsys is going to decrease its workforce by 10%  by FY2025, and it will have to spend $300M–$350M on restructuring. This is in line with the trend of the industry, which is fewer people but more AI-powered engineering workflows.
• Real-Time Manufacturing Leap: The partnership between Microsoft and Nvidia has led to the development of the new real-time manufacturing optimization framework that reduces simulation workloads and indicates the AI-native industrial automation, which is the next area for Synopsys.

Why This Matters for the AI Competition

I believe that EDA is gradually turning into an unnoticeable choke point of the AI ecosystem. The spotlight always shines on GPUs, but it is now chip design and verification speed that determine which companies will be first to sell their hardware. 

Nvidia, more than anyone else realizes this, and its $2B investment can be seen as a sign that the design blockages could delay the upcoming stage of AI’s expansion. Through forming a partnership with Synopsys (while maintaining collaborations with competitors like Cadence), Nvidia guarantees its participation in the design of tools for the future AI chips. Such a participation is beyond the value of the equity stake.

What’s Next?

In my view, investors are going to be looking for clues as to how quickly the Nvidia collaboration will bring about real product acceleration and revenue streams during December 10 Synopsys earnings call, which the company is going to hold anyway. 

The financial analysts will seek to know about the early adoption of Nvidia-empowered EDA workflows, the current status of Ansys integration, and if the company will adjust its guidance now that the market for its products has been extended.

The main thing is how Synopsys manages to project itself in the AI hardware race, where the market is curious to know whether this association is indicative of a transition to AI-native design automation, or is it just the first step in a major strategic reshaping. 

The fact that Nvidia is there to back Synopsys, is a clear signal that the company is changing its role from being a reliable EDA supplier to becoming the one that manufactures AI chips of the next generation.