Shares of Synopsys Inc (NASDAQ:SNPS) moved higher on Monday following a report that activist hedge fund Elliott Investment Management has accumulated a “multibillion-dollar” position in the company.
The Wall Street Journal reported on Sunday, citing people familiar with the matter, that Elliott has built the sizeable stake in the electronic design automation firm. Synopsys shares rose about 2.5% in premarket trading by 05:01 ET.
According to the report, Elliott plans to encourage Synopsys to expand the profitability of its software and services operations. The exact size of the investor’s stake has not yet been disclosed.
Elliott reportedly views Synopsys as a key player in the global semiconductor ecosystem and believes the company is well positioned to benefit from rapidly growing chip demand driven by artificial intelligence.
Wolfe Research analyst Joshua Tilton said that after several recent interactions with the company — including attending Synopsys’ Converge conference and visiting its headquarters — he believes the business is moving in the right direction.
“I came away confident the firm has launched the right products and put the right leadership in place to improve the organic growth of the business,” Tilton said.
“We are not surprised that Elliot Management sees similar potential,” he added.
Tilton also noted that Synopsys shares appear undervalued relative to peers.
“With SNPS shares trading at a 30%+ discount on revenue and 20%+ discount on earnings, there is a significant valuation gap to close,” if Elliott is able to help Synopsys accelerate its growth and narrow the gap with rival Cadence Design Systems, he wrote.
Synopsys is a major supplier to companies such as Intel, Alphabet and Tesla. The chip design software group has also attracted major industry backing — last year, AI leader Nvidia invested $2 billion in the company.