THE artificial intelligence (AI) The revolution has just turned three years old, marked by the release of ChatGPT on November 30, 2022. This has sparked a technological paradigm shift and propelled us into the future. As a pioneer of the graphics processing units (GPUs) that underpin the technology, Nvidia(NASDAQ:NVDA) has become a barometer for the AI industry. Each of the company’s actions is scrutinized by investors looking for an edge.
Since the dawn of AI, Nvidia has given investors plenty to think about, investing billions of dollars into six AI-focused companiesas well as entering into major agreements with several others.
Just this week, the company announced another strategic investment, this time in Synopsis(NASDAQ:SNPS)one of the leaders in chip design. Let’s take a look at Nvidia’s latest move and see if investors should follow suit.
Image source: Nvidia.
In a joint press release Monday, the two announced a “multi-year collaboration” aimed at expanding the reach of Nvidia’s widely used Compute Unified Device Architecture (CUDA), a library of software tools designed to help developers harness the raw computing power of Nvidia GPUs. Beyond CUDA, the deal covers agentic AI, physical AI and Omniverse digital twins.
By combining Nvidia’s AI expertise with Synopsys’ “market-leading engineering solutions” and chip design know-how, the two partners plan to “deliver capabilities that enable [research and development] teams to design, simulate and verify smart products more accurately, quickly and at lower cost.
Nvidia also announced that it had purchased more than 4.8 million shares of Synopsys common stock, worth approximately $2 billion.
The details are intriguing. Synopsys will use Nvidia’s CUDA libraries to accelerate its electronic design automation (EDA) – or chip design – process. This involves various steps, including designing the chip and digitally verifying that the physical configuration of the chip can be successfully manufactured, using “molecular simulations, electromagnetic analyses, optical simulations, etc.” »
The two will also work to develop the next generation of digital twins, or virtual representations of physical objects, that will facilitate development in various industries, including aerospace, energy, automotive, industrial, healthcare and, unsurprisingly, semiconductors.
By joining forces, Nvidia and Synopsys can provide GPU-accelerated engineering solutions for data centers and clouds.
As intriguing as the fact that Nvidia made a large purchase of Synopsys stock is, it’s worth taking a step back and looking at the bigger picture. Since the start of 2024, Nvidia and its venture capital arm – NVentures – have made 117 investments worth more than $62 billion, so the $2 billion stake in Synopsys would represent about 3% of its AI-focused holdings.
Additionally, in September, Nvidia announced a $100 billion partnership with OpenAI, although funds depend on OpenAI building and deploying 10 gigawatts of AI data centers built on Nvidia GPUs. This shows that Nvidia’s investments are widely distributed across the AI ecosystem. Its investment in Synopsys is therefore not the vote of confidence that it might seem at first glance.
A look at the company’s recent results helps add color. For its third fiscal quarter 2025 (ended July 31), Synopsys published results below expectations, causing the stock to plunge 35%. Revenue of $1.74 billion climbed 14% year-over-year, while earnings per share (EPS) plunged 43% to $1.51. Management attributed this deficit to its design intellectual property (IP), with revenue from this segment declining 8%.
Perhaps more concerning for investors is that Synopsys cut its fourth-quarter guidance to $2.25 billion, which not only missed Wall Street’s expectations but was also lower than management’s previous guidance. Expenses related to the completion of the Ansys acquisition and Chinese export restrictions weighed on the company’s results.
Finally, we must take into account the high valuation of Synopsys. Even After its recent fall from grace, the stock sold for 34 times earnings, a high price to pay for a company facing many challenges and taking “a more conservative view” for the upcoming fourth quarter.
In the long run, Synopsys could do very well, but after taking a step back and looking at the bigger picture, I definitely wouldn’t buy the stock just because Nvidia did it.
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