Benchmark Initiates Synopsys and Cadence with Buy Ratings on AI Chip Design Boom

Benchmark initiated coverage on electronic design automation (EDA) software leaders Synopsys (SNPS) and Cadence Design Systems (CDNS) with Buy ratings, forecasting strong long-term growth fueled by the demands of artificial intelligence.

Bullish Outlook on EDA Duopoly

In a note to clients, Benchmark highlighted the favorable market structure for the two companies, which effectively form a duopoly in the EDA sector. The firm cited high barriers to entry, strong pricing power, and expanding demand as key industry tailwinds. This demand is being supercharged by AI, which is dramatically increasing the complexity of both chip and system design.

Analysts at the brokerage believe this environment positions both Synopsys and Cadence to capture a larger share of semiconductor research and development spending as their customers race to develop more powerful and efficient chips.

Synopsys Positioned for AI-Driven Growth

Benchmark assigned a $570 price target to Synopsys, seeing significant upside potential. The firm expects the company's AI-powered design tools, simulation software, and intellectual property (IP) offerings to be primary growth drivers. The analysis also pointed to potential revenue acceleration from the pending acquisition of Ansys, with annual synergies eventually expected to reach $1 billion.

Benchmark provided the following fiscal 2026 forecasts for Synopsys:

• Revenue: $9.66 billion
• Non-GAAP Earnings Per Share: $14.76
• Operating Margin: 41%

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The firm anticipates that Synopsys management may raise its fiscal 2026 guidance later this year, given the favorable industry conditions.

Cadence Tapped as 'Preferred Name'

For Cadence Design Systems, Benchmark set a $450 price target and called it the "preferred EDA name," citing its strong execution and premium positioning in AI-enabled design software. The firm expects continued momentum from robust chip design activity, particularly among hyperscalers and system companies developing their own custom silicon.

Benchmark's fiscal 2026 projections for Cadence include:

• Revenue Growth: 16.6%
• Non-GAAP Operating Margin: 44%
• Earnings Per Share: $7.90

The brokerage also expects Cadence to raise its annual outlook when it reports its second-quarter results later this month.