HSBC Upgrades Synopsys to Buy on AI Business Shift

Synopsys is transitioning its business model from traditional intellectual property licenses to a license plus royalty system to better position itself as a high-growth AI beneficiary. HSBC analyst Frank Lee upgraded the electronic design automation provider from hold to buy, raising the price target to $700 from $490.

Lee projects this strategic shift could accelerate annual earnings growth from 7% to 28% through 2028. The company recently reported fiscal Q3 2026 revenue of $2.48 billion, representing a 42.4% year-over-year increase, and established an agentic AI partnership with TSMC.

Despite the positive outlook, the upgrade notes several risks. These include the integration of the $35 billion acquisition of Ansys, customer concentration, and the impact of export controls.