Synopsys (SNPS) is having a moment. The chip design software giant reported fiscal third-quarter results on Wednesday that beat expectations, and it raised its outlook for the rest of the year. The headline numbers: adjusted EPS of $3.91, ahead of the $3.67 analysts were looking for, and revenue of $2.48 billion, up 42% year over year and above the $2.44 billion Street estimate.
CEO Sassine Ghazi didn't mince words about what's driving the surge. During the earnings call, he said AI is creating "unprecedented complexity" and that this is fueling stronger demand for the silicon IP and engineering solutions needed to build next-generation AI computing, infrastructure, and physical AI systems. In other words, the more complex AI gets, the more companies need Synopsys's tools to design the chips that make it all work.
The company's free cash flow came in at $746 million, and it's sitting on $3.6 billion in cash and short-term investments against about $10 billion of debt. That's a healthy balance sheet for a company that's been on an acquisition spree, most notably buying Ansys last year.
Business Performance
Ansys, the simulation software maker Synopsys acquired about a year ago, contributed roughly $711 million in revenue. Management said the business continues to perform strongly, which is a good sign for that big-ticket acquisition.
EDA revenue grew 8.5% year over year, helped by strong software performance and a record quarter for hardware-assisted verification. The company expects double-digit growth in that segment in the fourth quarter and for the full year 2026.
Design IP revenue grew 11% to $474 million, with an adjusted operating margin of 26.5%. The company says it won more than 95% of PCIe 7 opportunities and secured 25 LPDDR6 design wins so far this year. Die-to-die IP revenue is on track to double year over year, with more than 100 design wins. And in automotive, Synopsys has maintained a 90%+ design win rate for three straight quarters as ADAS platforms move to 5nm and 3nm technologies.
USB IP Lifetime Bookings Crossed $2 Billion
One standout metric: Synopsys's USB IP lifetime bookings have now surpassed $2 billion, with tier-one wins advancing to leading-edge nodes. The company also introduced its new Multiphysics Fusion solution, which it says delivers up to 10x faster design closure and 3x faster runtime in customer validation. Revenue from that product is expected starting in 2027.
The third-quarter backlog stood at $10.9 billion, giving the company good visibility into future demand.
On the AI front, Synopsys has over 30 agentic AI engagements. Its verification agent is showing impressive results: up to 50x faster validated RTL, 20% better coverage, and up to 40% shorter debug cycles. That's the kind of productivity gain that makes customers want to keep buying.
The company also added 12 new and 66 repeat hardware-assisted verification customers in the quarter, showing that its hardware business is gaining traction.
Guidance Boost
Looking ahead, Synopsys expects fourth-quarter adjusted EPS of $4.10 to $4.16 and revenue of $2.53 billion to $2.58 billion. Analysts were expecting $4.00 and $2.552 billion, respectively.
For the full fiscal year 2026, the company raised its adjusted EPS guidance to $15.04-$15.10, up from $14.72-$14.80, and revenue guidance to $9.69 billion-$9.74 billion, up from $9.625 billion-$9.705 billion. The Street was at $14.76 and $9.68 billion.
Synopsys also projects Ansys will contribute $2.98 billion in revenue for the full year.
Shares were up 0.24% at $411.00 in premarket trading on Thursday, according to market data.
So, what's the takeaway? Synopsys is riding the AI wave, but it's not just about hype. The company is seeing real, broad-based demand across its product lines, and it's raising guidance to match. For investors, that's a good sign that the AI-driven complexity boom is translating into actual dollars.
