We recently published a list of 10 Tech Stocks with High Upside Potential. In this article, we are going to take a look at where Synopsys, Inc. (NASDAQ:SNPS) stands against other tech stocks with high upside potential.

As per Forrester Research, Inc., despite persistent inflation, the US real GDP is expected to increase 2.7% in 2025 and the US tech spending is projected to see growth of 6.1% to touch a staggering $2.7 trillion. The software spending in the US is expected to increase by 10.7% in 2025. With the escalation in cybersecurity risks, companies continue to leverage cloud and GenAI technologies to fuel future growth and innovation.

AI to Drive Growth in Tech Sector in 2025

The largest US stocks, also referred to as the Magnificent 7, have seen a strong run over the previous 2 years, mainly due to the buildout of AI infrastructure, says Goldman Sachs. Sung Cho, co-head of US Fundamental Equity in Goldman Sachs Asset Management. Cho believes this buildout can significantly benefit data and security companies, and software companies successfully integrating AI in their existing product set. As the Fed continues to cut rates, the smaller tech companies – which saw contraction in their multiples because of higher rates – might see a favourable macro backdrop.

READ ALSO: 7 Best Stocks to Buy For Long-Term and 8 Cheap Jim Cramer Stocks to Invest In.

Robust AI Investments are On the Horizon

UBS has highlighted how AI has and will continue to drive the growth of the broader technology sector. As per the firm, since the rollout of ChatGPT in November 2022, the total market capitalization of companies listed on the US technology exchange NASDAQ increased to ~US$13.5 trillion. Notably, around two-thirds of this value increase has been directly caused by the AI sector. Moving forward, the decisive factor is expected to be the extent to which significant investments in AI-based infrastructure can be translated into profitable business models.

While highlighting the consensus estimates, UBS stated that the 4 major US technology corporations are projected to invest ~US$280 billion in AI this year. Given the increased usage of this key technology across industries, value creation processes are expected to be optimized. This can lead to significant productivity gains. One such area is the market for robotics and automation, which is expected to reach a sales volume of ~US$350 billion in 2025, says UBS analysts. Notably, humanoid robotics will be the key area of particular interest because of the innovations.

Our Methodology

To list the 10 Tech Stocks with High Upside Potential, we used a screener and shortlisted the stocks catering to the broader technology sector. Next, we filtered out the stocks having an average upside potential of at least ~30%, as of February 28. Finally, the stocks were arranged in ascending order of their average upside potential. We also mentioned the hedge fund sentiments around each stock, as of Q4 2024.

Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).

Synopsys, Inc. (NASDAQ:SNPS)

Average Upside Potential: ~41.0%

Number of Hedge Fund Holders: 72

Synopsys, Inc. (NASDAQ:SNPS) is a leading player in the technology landscape as it specializes in electronic design automation, software security and semiconductor IP. Morgan Stanley analyst Lee Simpson gave a “Buy” rating on the company’s stock, setting a price target of $590.00. The rating is backed by a combination of factors demonstrating Synopsys, Inc. (NASDAQ:SNPS)’s strong performance and strategic positioning. Despite the slowing growth in China, the company showcased strength in other areas, mainly in its hardware segment, supporting it in maintaining FY 2025 guidance. For FY 2025, it expects revenue in the range of $6,745 million – $6,805 million.

Synopsys, Inc. (NASDAQ:SNPS)’s refreshed hardware portfolio drove improved hardware demand, resulting in the positive outlook. The analyst further highlighted that the valuation reflects a premium to the overall semiconductor sector. However, this is justified by Synopsys, Inc. (NASDAQ:SNPS)’s software-centric business model and its exposure to growth areas including AI-enabled tools and digital chip innovation, opines the analyst. Overall, the growth of AI, 5G, high-performance computing and autonomous vehicles continues to increase demand for advanced chip design, fueling adoption of the company’s EDA (Electronic Design Automation) tools and semiconductor IP.

Parnassus Investments, an investment management company, released Q3 2024 investor letter. Here is what the fund said:

“Synopsys, Inc. (NASDAQ:SNPS) plays a crucial role in optimizing semiconductor processing power beyond physical design limits. It benefits from companies like Google and Amazon designing their own chips and the proliferation of AI accelerator development. Its proprietary EDA technology and rising demand for custom chips and AI accelerators should drive durable revenue and earnings growth.”

Overall, SNPS ranks 3rd on our list of tech stocks with high upside potential. While we acknowledge the potential of SNPS as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for a deeply undervalued AI stock that is more promising than SNPS but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

READ NEXT: 20 Best AI Stocks To Buy Now and Complete List of 59 AI Companies Under $2 Billion in Market Cap

Disclosure: None. This article is originally published at Insider Monkey.