Arm Holdings plc (NASDAQ: ARM) and Synopsys, Inc. (NASDAQ: SNPS) both operate within the semiconductor design space, benefiting from rising AI chip demand across global markets.
ARM licenses processor architectures while SNPS provides electronic design automation software and IP used to design and verify advanced chips.
ARM registered record revenues of $1.5 billion in the fourth quarter of fiscal 2026, representing a 20% year-over-year increase driven by its dual-sided network effect linking software creators and hardware manufacturers.
ARM’s partnerships with Apple, Qualcomm, and Samsung have strengthened its position within consumer technology, while Arm-based Compute and Neoverse Compute Subsystems now represent nearly 50% of the market share among top hyperscalers.
Royalty revenues from data centers have more than doubled year over year, driven by ARM capturing nearly the entirety of the data center networking chips market.
Google’s custom Arm Axion CPUs, paired with its TPU8t/TPU8i architecture, deliver an 80% performance enhancement at 80% less power over x86 setups, reflecting strong hyperscaler adoption.
NVIDIA announced its next-generation Vera AI CPU incorporating 256 Vera CPUs into a stand-alone liquid-cooled rack, while Meta is acting as lead partner in developing multi-generation agentic solutions for users exceeding 3 billion.
A key risk for ARM is its exposure to China, where growth is slowing as Chinese companies shift toward RISC-V, an open-source chip architecture that undermines ARM’s market viability in the region.
SNPS posted 41.9% year-over-year revenue growth in the second quarter of fiscal 2026, largely driven by a maintenance and service segment that recorded nearly three times growth in revenues.
Management guided full-year fiscal 2026 revenues to a mid-point of $9.67 billion, up from prior guidance of $9.61 billion, with adjusted EPS projected at $14.76 for the year.
Despite that optimism, SNPS faces operating margin pressure from softness in its Design IP business, which saw a 720 basis point margin decline in the second quarter due to lower revenues.
Geopolitical tensions between the U.S. and China, alongside new export restrictions, are causing customers to turn cautious, adding further uncertainty to SNPS’s ability to meet its financial targets.
Competitive pressure from EDA vendors including Cadence Design Systems and Mentor Graphics Corporation also poses a challenge to SNPS’s growth and profitability across the IC design market.
The Zacks Consensus Estimate for ARM’s fiscal 2027 sales and EPS points to year-over-year gains of 20.7% and 18.6% respectively, with fiscal 2028 revenues expected to climb 39.4% and EPS gaining 46.2%.
For SNPS, the Zacks Consensus Estimate reflects 36.5% revenue growth and 11.9% EPS growth for 2026, with 2027 revenues projected to rise 10.3% and EPS gaining 17.3%.
ARM is currently trading at a forward 12-month price-to-sales ratio of 50.69X, well above its 12-month median of 28.42X, compared to SNPS trading at 9.89X against its median of 9.31X.
ARM carries a Zacks Rank of Hold while SNPS holds a Sell rating, with analysts recommending investors in SNPS consider exiting positions and potential buyers wait to assess the next quarterly performance.
