Shares in electronic design automation (EDA) and engineering simulation software company Synopsys (SNPS -0.91%) rose by 10.6% as of noon ET today. The big move comes as a consequence of the announcement that Nvidia would invest $5 billion in Intel stock, and the two companies would collaborate to develop "custom data center and PC products that accelerate applications and workloads across hyperscale, enterprise, and consumer markets," according to Nvidia.
Where Synopsys comes in
Intel and Synopsys are long-term partners , and the market is pricing in an increased level of demand from Intel for EDA solutions as it collaborates with Nvidia to develop chips.
This is a particularly pertinent consideration, because Synopsys recently disappointed the market with its third-quarter earnings report. One of the three issues that Synopsys CEO Sassine Ghazi highlighted on the earnings call was "challenges at a major foundry customer are also having a sizable impact on the year."
In addition, he noted, "We made certain roadmap and resource decisions that did not yield their intended results," which include the impact of the changes at the foundry customer. While Intel wasn't explicitly named, it appears that investors are assuming that it's the major customer Ghazi is referring to.
Image source: Getty Images.
Where next for Synopsys?
As recently discussed, it will take time for Synopsys to adjust to the issues it faced in the third quarter, not least as one of them relates to the uncertainty among customers in China over whether Synopsys will face restrictions on what it can sell to those customers in the future.
That said, Nvidia's investment in Intel (whether Intel is the customer Synopsys' management referred to) is indicative of a growth industry. Moreover, the long-term case for buying Synopsys stock is a powerful one.
