Why Shares in Synopsys Popped Higher Today

Shares in electronic design automation (EDA) company Synopsys (NASDAQ: SNPS) were up by more than 5% at 10 a.m. ET today. The positive developments came after officials from China and the U.S. confirmed that a new trade framework had been agreed upon between the two countries.

Why it matters to Synopsys

A thawing in the trade war with China matters to Synopsys for two main reasons. First, the company was forced to suspend its third-quarter and full-year guidance after the U.S. Department of Commerce applied new export restrictions that impacted Synopsys' ability to sell solutions to China. Second, China's market regulator has postponed approval of a merger between Synopsys and Ansys.

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Both issues are highly significant. In the first six months of its fiscal 2025, Synopsys generated almost 11% of its sales from China.

Turning to the Ansys deal, it's a critical part of management's growth plans. The aim is to integrate Synopsys EDA solutions with Ansys' engineering simulation solutions, offering customers the software to design semiconductor chips (which are increasingly being embedded in a broad range of industries) alongside the engineering simulation software that observes how these products behave in the real world.

The deal would also open up Synopsys' solutions to the broader range of customers that Ansys has in areas such as automotive, aerospace, and industrial.

Image source: Getty Images.

What it means for Synopsys investors

As yet, there's no sign that the restrictions on EDA exports to China are being lifted, and it's unclear whether China is deliberately holding back approval of the merger as a bargaining chip. As such, it's far from clear how the new framework will change matters for Synopsys.

Still, a de-escalation is a step in the right direction and may bring a satisfactory resolution to these issues a bit closer for Synopsys.

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Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Synopsys. The Motley Fool recommends Ansys. The Motley Fool has a disclosure policy.