Synopsys (SNPS), a leader in semiconductor design software and intellectual property, is emerging as a potential breakout stock in the AI sector. The company has spent the past three years consolidating after a significant rally, but recent developments suggest a brighter outlook. Key partnerships with Amazon and OpenAI, along with stronger-than-expected financial targets, have renewed investor interest.
Synopsys announced a major agreement with Amazon, which will use its intellectual property for custom silicon programs like Trainium, Graviton, and Nitro. This deal includes a royalty-based component tied to chip production, allowing Synopsys to benefit directly from its customers' growth. Additionally, the company partnered with OpenAI to develop GPT-Synopsys, an AI model for semiconductor design, positioning Synopsys as a beneficiary of AI advancements rather than a victim.
Management raised fiscal 2027 revenue projections to $11.10, $11.20 billion, surpassing analyst expectations of $10.81 billion. Non-GAAP earnings guidance was also increased to $19.04, $19.12 per share, well above the prior consensus of $17.81. The company aims for 15% annual revenue growth through fiscal 2030, with operating margins approaching 50% and adjusted EPS growth in the mid-20% range. Synopsys also plans to repurchase $1 billion in shares.
The improving outlook has led to higher analyst estimates, with SNPS receiving a Zacks Rank #1 (Strong Buy). Over the last 60 days, the consensus earnings estimate for fiscal 2027 increased by 6.1% to $18.26 per share. The stock is trading near $510, $520, testing resistance that could signal the start of another major rally if broken.