Synopsys lands a $1 billion-plus Amazon chip deal and guides to $11.15 billion in revenue; stock up 4.8%

Amazon Web Services signed a multi-year agreement worth more than $1 billion to license chip-design intellectual property from Synopsys, the companies said on Wednesday. Amazon becomes the lead customer for a new Synopsys line of application-optimized IP, meaning ready-made blueprints tailored to particular kinds of chips, Yahoo Finance reported. The deal covers Amazon's own processors, including Graviton, Trainium and Nitro. Reuters also reported the agreement.

After the market closed, Synopsys laid out its fiscal 2027 outlook and a long-term financial model at its 2026 Investor Day. The shares closed at $434.94, up 4.8% from Tuesday's $415.09, and were $436.30 after hours, according to Nasdaq. They remain about 19% below the 52-week high of $539.48.

What is new about the Amazon deal

The size matters less than the structure. Synopsys has traditionally charged license fees for design IP. This agreement is license-plus-royalty, so payments rise with the number of chips Amazon actually produces. If Amazon's custom silicon keeps scaling, Synopsys earns more from the same design work. If volumes disappoint, the royalty stream is smaller.

For scale, the more-than-$1 billion is spread over several years, and Synopsys expects about $11.15 billion of revenue in fiscal 2027 alone. The deal is meaningful as a template for Synopsys's IP business rather than a transformation of its total sales. The two companies are also going the other way: Synopsys will run its own development on Amazon's cloud, including EC2 and Bedrock, and tune its software for Trainium and Graviton. Synopsys also named OpenAI as a partner on a specialized chip-design model it calls GPT-Synopsys.

The guidance, and the gap everyone skips

Synopsys's fiscal 2027 targets:

Headlines ran with the non-GAAP number. The GAAP figure, which includes costs Synopsys excludes from its adjusted results, is less than half of it, and the GAAP operating margin is less than half of the adjusted one. That gap matters for valuation. At Wednesday's close, the stock is at about 23 times the midpoint of adjusted EPS guidance, but about 52 times the GAAP midpoint.

Free cash flow is the cleaner check. The $3.1 billion target is about 3.7% of the company's $83.4 billion market value. Synopsys said it plans to return up to half of free cash flow through buybacks, with about $1 billion of repurchases over the coming months, a little over 1% of its market value.

The long-term model

Through fiscal 2030, Synopsys is targeting revenue growth around 15% a year, with design IP growing faster, at 17% or more, than design automation software at 13% or more. It is aiming for a non-GAAP operating margin of about 50% by fiscal 2030 and growth in the mid-20% range for both non-GAAP EPS and free cash flow. The IP line, where the Amazon deal sits, is the part expected to do the most work.

Traders watching chip design stocks will judge the Amazon template by whether more customers sign on to royalty terms. More on the sector is in our stocks section. Coverage also ran at Benzinga and Investing.com.

Sources: Synopsys Investor Day release; Yahoo Finance; Benzinga; Investing.com; Nasdaq. Earnings multiples and cash flow ratios are our calculations. This is market information, not investment advice.