Stacking Synopsys against its closest competitors on revenue growth, profitability, and valuation gives investors a clearer picture of whether SNPS deserves the premium the market assigns it. The chip design software space is small, concentrated, and surprisingly sticky, which means the differences between these businesses often come down to margins, reinvestment rates, and how deep their moats actually run. Here's how to break down a Synopsys peer comparison that goes beyond surface-level numbers.
Key takeaways
- The electronic design automation (EDA) market is dominated by just a few players, making a Synopsys vs competitors analysis unusually focused and high-stakes.
- Revenue growth rates across EDA peers tend to cluster in a narrow band, but margin profiles can differ meaningfully depending on product mix and acquisition strategy.
- Switching costs in chip design software are among the highest in enterprise tech, which creates durable competitive moats for incumbents.
- Valuation premiums in this space often reflect the near-impossibility of new entrants disrupting established workflows.
- Comparing SNPS vs peers on free cash flow conversion and R&D intensity can reveal which company is best positioned for long-term compounding.
Who are Synopsys's main competitors?
The EDA industry is essentially a three-company market. Synopsys and Cadence Design Systems (CDNS) are the two dominant players, with Siemens EDA (formerly Mentor Graphics, now part of Siemens AG) rounding out the top tier. There are smaller, specialized firms like Ansys (ANSS), which Synopsys has moved to acquire, and Keysight Technologies (KEYS), which touches adjacent simulation and testing markets. But for a head-to-head competitor comparison, the most meaningful matchup is SNPS against Cadence.
This matters because when people search for a Synopsys peer comparison, they're usually trying to figure out whether SNPS or CDNS is the better business. The answer depends on what you prioritize: growth trajectory, margin quality, or capital allocation discipline. Both companies benefit from the same structural tailwinds (more complex chip designs, AI-driven semiconductor demand), but they've taken slightly different paths to get where they are.
Electronic Design Automation (EDA): Software tools used by semiconductor engineers to design, simulate, and verify integrated circuits before they're manufactured. EDA is the invisible backbone of every chip that ends up in your phone, car, or data center.
Revenue growth: How does Synopsys stack up?
Both Synopsys and Cadence have delivered strong, consistent revenue growth over the past several years, typically in the low-to-mid teens on a percentage basis. That consistency is part of what makes these businesses attractive. They don't have the boom-bust cycles you see in semiconductor hardware companies because their revenue comes from long-term software contracts and renewals.
When you compare Synopsys to competitors on growth, the differences tend to be modest. Cadence has occasionally edged ahead on organic growth rates, partly because of its expanding footprint in system design and simulation. Synopsys has leaned more heavily on acquisitions to broaden its portfolio, most notably its push into silicon IP and, more recently, its bid for Ansys to move deeper into simulation and analysis.
The real question isn't who grew faster last year. It's whether that growth is durable. Both companies benefit from multi-year contract structures that provide revenue visibility. Investors analyzing this dimension should look at backlog and remaining performance obligations as leading indicators, not just trailing revenue figures. You can pull up financials for SNPS on Rallies.ai to see how these figures have trended.
Does acquisition-driven growth count the same as organic growth?
This is where opinions diverge. Organic growth generally earns a higher multiple because it signals that existing products are gaining share. Acquisition-heavy growth raises questions about integration risk, goodwill write-downs, and whether the acquirer overpaid. Synopsys has a solid track record of integrating acquisitions, but investors should still separate organic from inorganic growth when running their own SNPS vs peers analysis. Cadence has historically been more organic-growth-oriented, though it has also made strategic acquisitions.
Profit margins: Comparing Synopsys to competitors on profitability
This is where EDA businesses really shine. Both Synopsys and Cadence carry operating margins that most software companies would envy, typically ranging from the high twenties to the mid-thirties as a percentage of revenue. Gross margins tend to sit in the high seventies to low eighties, reflecting the asset-light, subscription-heavy nature of the business.
A few things to watch when comparing margins across peers:
- Product mix: IP licensing revenue (where Synopsys has a larger presence) can carry different margin profiles than pure EDA software.
- R&D spending: Both companies reinvest heavily in research and development, often north of 30% of revenue. Higher R&D spending can compress near-term margins but fuels long-term competitive positioning.
- Acquisition drag: Large acquisitions temporarily dilute margins through integration costs and amortization of intangibles.
Net income margins and free cash flow margins are also worth separating. A company can look less profitable on a GAAP basis due to stock-based compensation or acquisition-related charges while still generating strong cash flow. Free cash flow conversion, meaning how efficiently operating profit turns into actual cash, is arguably the better measure for comparing SNPS vs peers.
Free cash flow conversion: The ratio of free cash flow to net income or operating income. A consistently high conversion rate (above 100% is common in asset-light software) suggests earnings quality is strong and the business isn't burning cash to maintain growth.
Valuation: Does Synopsys deserve a premium over peers?
Both Synopsys and Cadence trade at significant premiums to the broader market and even to most enterprise software companies. Price-to-earnings ratios in the 40x to 60x range are not unusual for these names, depending on where you are in the cycle. That kind of valuation only makes sense if you believe the growth is durable, the margins are sustainable, and the moat is wide enough to prevent erosion.
When you compare Synopsys to competitors on valuation, you're really asking: is the market pricing in a growth advantage for one over the other, and is that justified?
Some frameworks to consider:
- PEG ratio: Comparing price-to-earnings against expected earnings growth rates can normalize for different growth speeds. A lower PEG suggests you're paying less for each unit of growth.
- EV/FCF: Enterprise value to free cash flow strips out capital structure effects and focuses on cash generation. This is often a cleaner comparison than P/E for companies with significant stock-based compensation.
- Relative premium analysis: Look at how each stock's valuation multiple compares to its own historical range. A stock trading at the high end of its five-year multiple range warrants more scrutiny than one trading near the midpoint.
Neither company is cheap by conventional standards. The question is whether the premium is fair given the quality of the businesses. Historically, investors who waited for EDA stocks to become "cheap" ended up watching from the sidelines.
Competitive moat: What protects Synopsys and its peers?
The moat around EDA businesses is one of the widest in technology, and it comes from several reinforcing sources.
Switching costs are enormous. Chip design workflows are deeply embedded in a company's engineering processes. Designers spend years learning specific tools, building custom libraries, and developing verification flows tied to a particular EDA platform. Ripping that out and starting over with a competitor's toolchain would cost months or years of productivity. This isn't like switching your CRM. It's closer to ripping the engine out of a car while driving it.
The customer base is concentrated but sticky. The world's largest semiconductor companies (think TSMC, Intel, Samsung, Nvidia, Qualcomm) all depend on EDA tools from Synopsys and Cadence. These relationships span decades. When a chip foundry certifies its process technology with a specific EDA vendor's tools, that creates a flywheel: designers use those tools because they're certified, and foundries certify those tools because designers use them.
Barriers to entry are sky-high. Building competitive EDA software requires billions in cumulative R&D and deep relationships with semiconductor manufacturers. No startup is going to replicate Synopsys's or Cadence's toolchain from scratch. Even large technology companies with massive budgets have generally chosen to buy or license EDA tools rather than build their own.
When comparing Synopsys vs competitors on moat strength, the honest answer is that both SNPS and Cadence benefit from nearly identical structural advantages. The differentiation is more about which specific tools are strongest in which specific niches (physical design vs. verification vs. IP, for example) than about one company having a fundamentally better moat than the other.
Process technology certification: When a semiconductor foundry validates that a specific EDA tool works correctly with its manufacturing process. This certification creates a self-reinforcing loop between EDA vendors, foundries, and chip designers.
What are the risks of investing in Synopsys or its peers?
No moat is permanent, and even dominant businesses carry risks worth understanding:
- Concentration risk: The semiconductor industry is cyclical, and EDA revenue, while more stable than chip sales, isn't entirely immune. A prolonged downturn in chip capex could slow growth.
- Acquisition risk: Large deals like Synopsys's bid for Ansys introduce integration complexity and regulatory uncertainty. If a major acquisition gets blocked or goes poorly, it can weigh on returns for years.
- AI disruption (or opportunity): Artificial intelligence is starting to play a role in chip design itself. If AI tools can meaningfully automate parts of the design process, incumbents need to be the ones providing those tools. So far, both Synopsys and Cadence are investing heavily in AI-assisted design, but it's worth monitoring whether new entrants find an opening.
- Valuation compression: At premium multiples, any disappointment in growth or margins gets punished harshly. Investors paying 50x earnings need the growth story to stay intact.
- Geopolitical risk: Semiconductor supply chains are politically sensitive. Export controls, trade restrictions, and shifting manufacturing footprints could all affect demand for design tools in certain regions.
Investors doing their own Synopsys peer comparison should weigh these risks against the structural advantages. The stock analysis resources on Rallies.ai can help frame this kind of risk-reward thinking.
How to run your own SNPS vs peers comparison
If you want to go deeper than what any single article can cover, here's a practical framework:
- Pull financial summaries side by side. Revenue growth rates, operating margins, free cash flow margins, and R&D as a percentage of revenue. Look at three-to-five-year averages, not just the latest period.
- Compare valuation multiples in context. P/E, EV/FCF, and PEG ratios tell different stories. Check each against its own historical range.
- Assess capital allocation. How does each company spend its cash? Buybacks, acquisitions, R&D, or debt reduction? The mix matters for long-term compounding.
- Map the product portfolio. Where does each company lead? Digital design, verification, IP, analog, simulation? Understanding product strength by category helps you gauge future share shifts.
- Read the 10-Ks, not just the press releases. The risk factors and management discussion sections often contain more useful information than earnings call soundbites.
You can speed this up by using the Rallies AI Research Assistant to pull comparative data and ask targeted follow-up questions. It's built for exactly this kind of multi-company analysis.
Try it yourself
Want to run this kind of analysis on your own? Copy any of these prompts and paste them into the Rallies AI Research Assistant:
- Compare Synopsys to its top competitors on revenue growth, profit margins, and competitive moat — which companies are winning in the chip design software space, and what makes their business models different?
- Compare Synopsys to its closest competitors side by side — revenue growth, margins, valuation, and competitive position.
- What are the biggest risks to Synopsys's competitive position in EDA, and how does its moat compare to Cadence Design Systems?
Frequently asked questions
How do you compare Synopsys to competitors in the EDA market?
The most useful comparison focuses on revenue growth rates, operating and free cash flow margins, valuation multiples, and competitive moat strength. Because the EDA market is concentrated among just a few players, side-by-side analysis of Synopsys and Cadence Design Systems covers the majority of the relevant competitive landscape. Look at multi-year trends rather than single-quarter snapshots.
What is a Synopsys peer comparison based on?
A Synopsys peer comparison typically benchmarks SNPS against Cadence Design Systems (CDNS) and, to a lesser extent, Siemens EDA and adjacent companies like Ansys or Keysight. The comparison dimensions that matter most are growth consistency, margin quality, R&D reinvestment rates, and the depth of customer switching costs.
Is SNPS vs peers mainly about Synopsys and Cadence?
For the core EDA business, yes. Synopsys and Cadence together control the vast majority of the market. Other companies touch adjacent areas like simulation, testing, or manufacturing software, but the direct head-to-head is SNPS vs CDNS. Synopsys's push into simulation through its Ansys acquisition could broaden the peer set over time.
Why do EDA stocks trade at such high valuation multiples?
EDA companies benefit from recurring revenue, extremely high switching costs, limited competition, and strong secular tailwinds from increasing chip complexity. Investors assign premium multiples because these businesses generate consistent free cash flow with relatively low cyclicality compared to other semiconductor-related companies. The market is essentially pricing in durable, above-average growth.
What makes Synopsys different from Cadence?
Synopsys has a larger silicon IP licensing business, which provides a complementary revenue stream beyond pure EDA software. Cadence has been slightly more organic-growth-focused and has a strong position in custom and analog design tools. Both companies lead in different niches within the broader chip design workflow, and most large semiconductor companies use tools from both.
How do switching costs affect the Synopsys vs competitors debate?
Switching costs are the single biggest factor in the competitive dynamics of EDA. Chip design teams build their workflows, libraries, and verification processes around a specific vendor's tools over many years. Switching would require retraining engineers, rebuilding tool flows, and re-verifying designs, all of which costs time and money that most companies aren't willing to spend. This keeps churn rates extremely low for both Synopsys and Cadence.
Can AI disrupt the EDA market and change the competitive landscape?
AI is more likely to reinforce incumbent advantages than disrupt them, at least in the near term. Both Synopsys and Cadence are embedding AI and machine learning into their existing tools to automate parts of the design process. Because these AI features are layered on top of decades of proprietary data and tool integration, it's hard for a new entrant to compete. That said, investors should monitor whether any startup finds a wedge into the market.
Where can I find tools to compare Synopsys to its competitors myself?
You can start with the SNPS research page on Rallies.ai and use the AI Research Assistant to ask detailed comparison questions. Screening tools like the Rallies Vibe Screener also let you filter and compare companies across financial metrics side by side.
Bottom line
A Synopsys vs competitors analysis comes down to a few core questions: who's growing faster, who converts more revenue into cash, and whose moat is widest. The answers are closer than you might expect, which is partly why both SNPS and Cadence trade at premium valuations. The EDA market rewards patience and compounding, not dramatic swings.
If you want to dig deeper into how Synopsys and its peers compare on the metrics that matter, explore more stock analysis frameworks and run your own side-by-side using the tools above. Do your own research, pressure-test your assumptions, and consult a qualified financial advisor before making any investment decisions.
Disclaimer: This article is for educational and informational purposes only. It does not constitute investment advice, financial advice, trading advice, or any other type of advice. Rallies.ai does not recommend that any security, portfolio of securities, transaction, or investment strategy is suitable for any specific person. All investments involve risk, including the possible loss of principal. Past performance does not guarantee future results. Before making any investment decision, consult with a qualified financial advisor and conduct your own research.
Written by Gav Blaxberg, CEO of WOLF Financial and Co-Founder of Rallies.ai.