AI Design Sends Synopsys, Nvidia, TSMC & Other Chip Stocks Higher

Key Points

• Collaborations in the area of accelerated computing, including AI, helped drive several chip-industry big names higher in late March.
• Synopsys recently broke out of a flat base, but after a 21-day pullback, remains in buy range.
• The company's new technology allows engineers to use AI at every stage of chip design, and access the solutions in the cloud.
• Renesas, a Japan-based company that specializes in automotive chips, is shaving weeks off product development times while enhancing chip performance and slashing costs. 

Collaborations in the area of accelerated computing, including AI, helped drive chip-industry names including Synopsys Inc. NASDAQ: SNPS, Nvidia Corp. NASDAQ: NVDA, Taiwan Semiconductor Manufacturing NYSE: TSM and ASML Holding N.V. NASDAQ: ASML in the week ended March 31. 

On March 29, Synopsys launched Synopsys.ai, a suite of AI-driven solutions for the design, verification, testing, and manufacturing of advanced digital and analog chips. 

Announcing the launch, Synopsys said Nvidia, TSMC, International Business Machines Co. NYSE: IBM, MediaTek, and Renesas “all support Synopsys' AI-driven EDA design strategy with significant benefits already being seen.” 

The technology allows engineers to use AI at every stage of chip design and access the solutions in the cloud. In a news release announcing the development, Synopsys said Renesas, a Japan-based company specializing in automotive chips, was already using Synopsys.ai to shave weeks off product development times while enhancing chip performance and slashing costs. 

Approaching New Highs

Synopsys rocketed 2.74% on March 31, approaching its best levels since August 2022, when it rallied to all-time highs. Trading volume was heavier than normal. The stock was up 2.57% for the week. In the past three months, the stock advanced 20.97%. 

Synopsys provides electronic design automation (EDA) software and other intellectual property. The company's tools and solutions enable chip designers and manufacturers to create, verify, and test complex semiconductor designs faster and more efficiently. 

Synopsys also offers consulting services to help its customers optimize their design processes and improve product quality. Its products and services are used by some of the world's largest semiconductor companies, as well as smaller design firms and startups. As adoption of technologies including AI, 5G communications, cloud computing and self-driving vehicles become more ubiquitous, Synopsys stands to benefit. 

In a March 29 blog post, “New Horizons For Chip Design,” Arvind Narayanan, Synopsys senior director of product line management for the company’s EDA group, pointed out the need for greater industry-wide efficiency in the chip-development process. 

“An AI-driven EDA design suite offers a way forward, complementing and enhancing the work of engineering teams, Narayanan wrote. 

He added, “According to Deloitte Global, the world’s top semiconductor companies will spend US $300 million on internal and third-party AI tools to design chips this year, a spend that’s expected to grow 20% each year over the next four years.

Wall Street Is Bullish

Despite a slowdown in revenue growth over the past four quarters, the price action in late March indicates that investors are bullish on the stock. MarketBeat analyst data for Synopsys show a “moderate-buy” rating with a price target of $424.18, a potential upside of 9.82%. 

A look at Synopsys’ chart shows the stock recently cleared a flat base that began in mid-February. It’s often easiest to get a granular view of chart formations using a bar or candlestick view rather than a line view. It cleared a buy point above $379.76 on March 22, then pulled back to get support at its 21-day moving average.  

Shares closed at $386.25 on March 31, meaning the stock remains in buy range.

Analysts expect Synopsys to earn $7.22 a share this year, a decrease of 19% from 2022. Growth is expected to return in 2024, with the company earning $8.46 a share, an increase of 17%. 

Meanwhile, Nvidia on March 21 announced a breakthrough that brings accelerated computing to the field of computational lithography. That’s a computer-based process that helps design the patterns for creating microchips. It uses complex algorithms to predict how light will interact with the chip's surface during the lithography process, which is a critical step in chip manufacturing. 

Massively Accelerating Performance

In a news release, Nvidia said semiconductor leaders, including ASML, TSMC, and Synopsys are accelerating “the design and manufacturing of next-generation chips, just as current production processes are nearing the limits of what physics makes possible.”

In a statement, Synopsys CEO Aart de Geus said the Nvidia collaboration, running Synopsys software, “massively accelerated the performance from weeks to days! The team-up of our two leading companies continues to force amazing advances in the industry.”