S&P Revises Synopsys Outlook to Positive on Rapid Debt Reduction

S&P Global Ratings has revised its outlook on Synopsys Inc. (NASDAQ:SNPS) to positive from stable, signaling a potential credit rating upgrade in the future. The ratings agency affirmed its BBB rating for the electronic design automation (EDA) software provider and its debt, citing the company's rapid progress in reducing its debt load.

Deleveraging Ahead of Schedule

The outlook change was driven by Synopsys's leverage falling to 2.3x, which is near S&P's upgrade threshold of the low-2x area. The company has been aggressively paying down liabilities incurred from its acquisition of Ansys.

Key deleveraging actions highlighted by S&P include:

• Repaying $4.3 billion of the $14.3 billion in debt from the Ansys deal.
• Using proceeds from a $2 billion investment by Nvidia for additional debt reduction.

S&P forecasts Synopsys's leverage will continue to fall, projecting 1.8x in fiscal 2026 and 1.2x in 2027. This aligns with the company's target to maintain net leverage below 1x, which S&P expects will build a cushion for future acquisitions over the next two years.

Business Context and Ansys Integration

Ad

While Synopsys has shown discipline in its debt repayment, S&P noted that challenges in the company's intellectual property (IP) business over the last four quarters have slowed the pace of leverage reduction. Pro forma revenue growth was below 6% year-over-year last quarter, and EDA revenue growth of 8% was below historical rates of over 10%.

However, the ratings agency anticipates sequential revenue gains through the rest of 2026. Growth drivers include better pipeline execution, new IP titles for AI customers, and a strategic shift toward higher-value deals with hyperscalers. The Ansys acquisition is seen as a strategic positive, strengthening Synopsys's position in system-level design and simulation amid strong demand from AI data centers, aerospace, and automotive sectors.

Path to an Upgrade

S&P stated it could raise Synopsys's credit rating over the next 12 to 24 months. This is contingent on the company building sufficient financial capacity to execute its acquisition strategy while consistently maintaining leverage no higher than the low-2x area.

Conversely, the outlook could revert to stable if Synopsys pursues acquisitions that sustain leverage above that threshold or if operational missteps lead to a deterioration in its market position, according to the ratings agency.