Synopsys, Inc. (SNPS) | The Buildout — AI Infrastructure
The Verdict
Synopsys sells the software engineers use to design chips and the pre-built circuit blocks they plug into those designs. Its EDA tools automate and check chip design; its silicon IP supplies ready-made interfaces such as PCIe and die-to-die links; and after acquiring Ansys it sells multiphysics simulation that predicts how a product behaves in the real world. Together that makes it a toll-collector on advanced chip design rather than a seller of AI systems. The more complex the chip and the more specialized its packaging, the more of Synopsys' software and IP a designer consumes — which is why the company describes the demand pull as running from chip to grid.
| Market Cap | — |
| Revenue (TTM) | $9.4B |
| Revenue Growth | +46.3% |
| EBITDA Margin (TTM) | 26.8% |
| Net Debt | $7.2B |
| Earnings Beats | 6 of 7 |
| P/E (TTM) | — |
| EV/EBITDA (TTM) | — |
What We Like
- Design IP returned to growth: $474M in Q3 FY2026, up roughly 11% y/y after a 6% decline in Q2, with segment adjusted operating margin recovering to 26.5% from 24.4%.
- Guidance was raised for a second consecutive quarter: FY2026 revenue to $9.69B–$9.74B, non-GAAP operating margin to 41.5%, non-GAAP EPS to $15.04–$15.10.
- Free cash flow guidance rose $600M to about $2.6B on a $50M revenue raise, with capital expenditures cut to about $225M.
- Interface IP win rates are high: more than 95% of PCIe 7 opportunities won, die-to-die on pace to double year over year with more than 100 cumulative design wins, LPDDR6 at 25 design wins year to date, and USB IP past $2B in lifetime bookings.
- Ansys integration is running ahead of schedule on cost synergies, term loans were repaid earlier than planned, and the FY2026 Ansys contribution is guided to about $2.98B.
What We’re Watching
- The 10-Q flags IP reallocation risk: citing the 'underperformance of our Design IP segment,' the company says it is 'in the process of reallocating resources,' and that those efforts 'may not succeed or generate expected returns.'
- Factory 2 moved from Q2's target of 'few customers with signed agreements' by fiscal year-end to Q3's 'active discussions,' with no signed agreement confirmed.
- Customer concentration is disclosed but unnamed: one customer was 12.6% of consolidated revenue in fiscal 2024 and 13.5% in fiscal 2023, and the 10-Q says challenges with a major foundry customer hurt fiscal 2025 results.
- Backlog slipped to $10.9B from $11.0B, attributed to the processor IP divestiture — plausible, but not independently verifiable from the call record.
The thesis is strengthening on direction and still pending on magnitude. Two consecutive quarters of guidance raises, an IP segment that went from decline to 11% growth, a record hardware-verification quarter and a $600M free-cash-flow raise all point the same way. But reported growth is carried by the Ansys acquisition, organic growth ex-Ansys remains high-single-digit, and every step-change monetization vector is explicitly deferred to FY2027 or later. The open question is whether those vectors land on schedule — and whether Synopsys accelerates in its own core markets.
Earnings Beat
Synopsys reported Q3 FY2026 revenue of $2.477B, up approximately 42% year over year and including about $711M of Ansys revenue. Gross margin was 72.6%, non-GAAP operating margin was 41.6%, and free cash flow was $746M. GAAP EPS of $2.84 includes a gain on the processor IP solutions sale that closed in the quarter. The standout was Design IP, which returned to growth at $474M, up roughly 11% year over year.
| Metric | Q3 FY2026 | Q2 FY2026 | Q3 FY2025 | YoY |
|---|---|---|---|---|
| Revenue | $2.5B | $2.3B | $1.7B | +42.4% |
| Gross margin | 72.6% | 72.3% | 78.1% | -550bps |
| EBITDA | $812M | $693M | $280M | +190.4% |
| EPS | $2.84 | $0.09 | $1.50 | +89.3% |
| Design IP revenue | $474M | $454M | n/a | +~11% |
| Backlog | $10.9B | $11.0B | n/a | — |
You need an inflection point in order to go from that value creation to broader value capture.— CEO, 2026-08-26
Management tone: Tone hardened between the Q2 and Q3 FY2026 calls, and the shift was backed by delivered numbers: management raised its EDA target to double-digit growth for Q4 and full year 2026 despite a tougher comparison, after its Q2 call that Design IP had bottomed proved correct. Two things moved the other way. Management declined to give the Q3 Ansys channel-accounting amount — 'We didn't disclose the in quarter.' — and did not restate the 10% headcount reduction target while guiding FY2026 restructuring charges higher.
Management Guidance
For FY2026 management guides revenue of $9.69B–$9.74B, a $50M midpoint raise attributed to strength in Design Automation led by EDA; non-GAAP operating margin of 41.5% at the midpoint, a 50 basis point raise; non-GAAP EPS of $15.04–$15.10; GAAP EPS of $3.84–$4.08, a range that includes the processor IP divestiture gain and higher restructuring charges; non-GAAP costs and expenses of $5.67B–$5.70B; cash flow from operations of about $2.8B; free cash flow of about $2.6B; and capital expenditures of about $225M. Within the total, Ansys is guided to contribute about $2.98B, including roughly $60M of channel-accounting impact that management says is neutral to EPS and cash flow. For Q4 FY2026 management initiated revenue guidance of $2.53B–$2.58B, non-GAAP costs and expenses of $1.45B–$1.48B, and non-GAAP EPS of $4.10–$4.16.
Trajectory
Reported figures show revenue stepping up from $1,739.7M in Q3 FY2025 to $2,476.8M in Q3 FY2026, but the increase is dominated by Ansys, which contributed about $711M in the latest quarter. Organic growth is far slower — EDA up 8.5% year over year, Design IP up 11%, and management describes the total ex-Ansys organic rate as roughly high-single-digit. Gross margin compressed over the same span, from 78.1% to 72.6%, largely because amortization of acquired intangible assets now sits inside cost of revenue; EBITDA as a share of revenue moved the other way, from 16.1% to 32.8%, as cost synergies landed. Trailing twelve months: revenue $9,416.5M, EBITDA $2,526.9M.
The Model
The model projects FY+1 revenue of $10,902M and EBITDA of $3,739M, a 34.3% margin, then FY+2 revenue of $12,270M and EBITDA of $4,405M, a 35.9% margin. FY+1 is anchored on management's FY2026 revenue guidance, plus a first full year of double-digit EDA growth and the Ansys contribution. FY+2 leans harder on the vectors management has deferred to FY2027 and beyond — Multiphysics Fusion add-on capabilities contributing to EDA growth, Factory 2 license-plus-royalty terms, and consumption-based agentic EDA workflows.
| Metric | FY2025 | Next FY (E) | Following FY (E) |
|---|---|---|---|
| Revenue | $7.1B | $10.9B | $12.3B |
| YoY Growth | — | +54.5% | +12.5% |
| EBITDA | $1.6B | $3.7B | $4.4B |
| EBITDA Margin | 22.3% | 34.3% | 35.9% |
Projections are the median of 5 independent model runs. The model’s revenue sits 2.5% above analyst consensus.
For FY2026 management guides revenue of $9.69B–$9.74B, a $50M midpoint raise attributed to strength in Design Automation led by EDA; non-GAAP operating margin of 41.5% at the midpoint, a 50 basis point raise; non-GAAP EPS of $15.04–$15.10; GAAP EPS of $3.84–$4.08, a range that includes the processor IP divestiture gain and higher restructuring charges; non-GAAP costs and expenses of $5.67B–$5.70B; cash flow from operations of about $2.8B; free cash flow of about $2.6B; and capital expenditures of about $225M. Within the total, Ansys is guided to contribute about $2.98B, including roughly $60M of channel-accounting impact that management says is neutral to EPS and cash flow. For Q4 FY2026 management initiated revenue guidance of $2.53B–$2.58B, non-GAAP costs and expenses of $1.45B–$1.48B, and non-GAAP EPS of $4.10–$4.16.
What Could Go Right — and Wrong
- Factory 2 converts from active discussions to signed license-plus-royalty agreements, adding per-chip revenue on custom silicon rather than a one-time license.
- Multiphysics Fusion moves from customer validation to production, turning the NVIDIA, Cisco, MediaTek and Samsung Foundry trials into EDA revenue in 2027.
- Agentic EDA moves to a subscription-plus-consumption model, increasing how much of the underlying software customers run per design.
- EDA sustains double-digit organic growth through FY2027 without the FY2027-only vectors.
- Cash conversion holds — a second quarter confirming the $600M free-cash-flow raise rather than a one-quarter collections effect.
- The 10-Q's own AI-disruption risk lands first — 'disruption to both our business models and existing technology offerings' — ahead of the FY2027 monetization vectors.
- The FY2027 vectors slip again, leaving growth on a high-single-digit organic base just as the Ansys acquisition annualizes out of reported growth.
- Non-AI stabilization proves a two-quarter blip, with industrial, automotive and consumer design starts rolling over again.
- A second 'major foundry customer' episode, or disclosure of the unnamed customer that was 12.6% of fiscal 2024 revenue.
- Restructuring charges keep rising while the 10% headcount target goes un-restated, and the 'ahead of schedule' synergy language loses its margin support.
Looking Ahead
The next twelve months turn on two dates and one question. Investor Day on September 30, 2026 is where management has promised to quantify Factory 2 economics, agentic AI monetization, the long-term IP growth model and the remaining cost-synergy path. Q4 FY2026 results then test the double-digit EDA growth and sequential Design IP growth management has guided to. Underneath both sits the same question: whether the FY2027 monetization vectors arrive on schedule, or whether growth settles at the high-single-digit organic rate as the Ansys acquisition annualizes out of the reported numbers.
- September 30, 2026Investor Day — Factory 2 economics, agentic pricing and long-term IP growth model quantified
- Q4 FY2026Q4 earnings print — Tests double-digit organic EDA growth and sequential Design IP growth
- End of FY2026Factory 2 deadline — Q2 framing targeted signed license-plus-royalty agreements by year-end
- 2027Fusion revenue begins — Multiphysics Fusion add-ons start contributing to EDA growth
- Year 4 after Ansys close$400M synergy target — Committed joint-solution revenue synergy; reaffirmed, not pulled forward
Financials
Annual Summary
| Metric | FY2024 | FY2025 | TTM | YoY |
|---|---|---|---|---|
| Revenue | $6.1B | $7.1B | $9.4B | +15.1% |
| Gross Margin | 79.7% | 77.7% | 72.4% | 205bps |
| EBITDA | $1.7B | $1.6B | $2.5B | -4.6% |
| EBITDA Margin | 26.9% | 22.3% | 26.8% | 461bps |
| Net Income | $2.3B | $1.3B | $1.1B | -41.1% |
| Free Cash Flow | $1.3B | $1.3B | $2.8B | — |
| Net Cash | — | — | — | — |
Key Ratios (Trailing)
- P/E TTM—
- EV/EBITDA TTM—
- EV/Revenue TTM—
- Price/FCF TTM—
- Gross Margin (TTM)72.4%
- EBITDA Margin (TTM)26.8%
- Net Margin (TTM)11.4%
- ROIC1.9%
- FCF Conversion110.4%
- SBC / Revenue10.1%
The Company
Synopsys sells engineering software and pre-designed circuit blocks for chip and system design. Its EDA products automate chip design work, keep track of large data volumes and reduce errors; its silicon IP supplies ready-to-use circuits such as PCIe, die-to-die, HBM and LPDDR interfaces; and its Ansys simulation and analysis software predicts thermal, structural and fluid performance. The FY2025 10-K describes Synopsys as 'the leader in engineering solutions from silicon to systems, enabling customers to rapidly innovate AI-powered products.' Management's Q3 FY2026 observation was that design activity is highest among AI and high-performance compute customers building specialized chips with multi-die architectures, more complex packaging and system requirements.
The company owns almost no physical infrastructure. The 10-K lists a single facility entry — Sunnyvale, California, 'principal offices' — and no fabs, data centers or named construction sites; hardware products are produced through a supply chain. It reports in two segments, Design Automation (which includes EDA, Ansys and Other) and Design IP. The perimeter has been reshaped twice in roughly a year: Ansys closed on July 17, 2025 for approximately $34.9 billion, the Optical Solutions Group was divested in Q4 FY2025, and the processor IP solutions business was sold to GlobalFoundries, closing in June 2026.
Business Segments
Competitive Landscape
The competitive fight is concentrated in EDA and interface IP. Synopsys' filing evidence names Cadence Design Systems and Siemens EDA, and the 10-Q lists the factors the company competes on: anticipating development cycles, integration versus individual product performance, 'enhancing the value of our offerings through more favorable terms,' managing an efficient supply chain for hardware availability, payment terms, and providing engineering and design consulting. Synopsys' offsets in the source material are its interface IP win rates — more than 95% of PCIe 7 opportunities won, die-to-die on pace to double year over year with more than 100 cumulative design wins — its record hardware-verification quarter and Ansys multiphysics.
- Cadence Design Systems (CDNS)Listed by the relationship map as a documented competitor across digital, signoff, verification, analog, emulation, IP and thermal simulation. Cadence's own filing lists 'Synopsys, Inc., Ansys, Inc. (acquired by Synopsys)' among its key competitors.
- Siemens EDA (SIEGY)Appears in Synopsys' 10-K through a management bio: incoming Chief Revenue Officer Mike Ellow was CEO of Siemens EDA from June 2024 to November 2025. Also named as a competitor by Cadence and Silvaco.
- Rambus (RMBS)Interface IP competitor and also carried as a Synopsys customer. Rambus' filing: 'In the Silicon IP market, Rambus competes with the in-house design teams at our potential customers, as well as with third-party IP suppliers, such as Cadence and Synopsys.'
- Silvaco (SVCO)Silvaco's filing states: 'We compete most frequently with Synopsys, Inc., Siemens EDA, and Cadence, Inc.'
- PDF Solutions (PDFS)PDF Solutions' filing cites 'direct competition from providers of: yield management and/or prediction systems, such as KLA, Onto Innovation, and Synopsys.'
Supply Chain
Synopsys owns no fabs or data centers; its only disclosed facility is its Sunnyvale, California principal offices. It sits upstream of the chipmakers, selling them design software and IP, and buys compute hardware and cloud capacity to run its own development and verification.
More on SNPS: Earnings recap