Synopsys's gross margin over the trailing twelve months through its fiscal third quarter of 2026 stood at 72.4%. The pressure is not confined to the top of the income statement.
The operating margin reading is close to the bottom of Synopsys's own history. Among 65 prior trailing-twelve-month observations, the current 8.5% figure ranks in the 1.5th percentile, just above the historical low of 7.0%. The gap between the 8.6-point fall in operating margin and the larger 19.6-point fall in net margin points to additional pressure below the operating line that the trailing-twelve-month figures used here do not itemise.
Revenue growth is accelerating, not slowing
The margin compression has coincided with the fastest revenue growth Synopsys has recorded in this dataset. TTM revenue grew 46.3% year over year, accelerating by 6.8 percentage points from the prior quarter and marking the 100th percentile of 61 prior quarterly readings, whose previous high was 39.5%. That rules out one simple explanation: this is not a case of a slowing topline failing to cover fixed costs. Costs across the business are rising faster than an already-accelerating revenue line, not merely failing to keep pace with a shrinking one.
Separately, Synopsys's diluted share count rose 21.2% year over year over the same period. That is a capital-structure change that dilutes whatever net income the company reports on a per-share basis, independent of the margin trends described above; the filings here do not say what drove the increase.
Free cash flow is moving the other way
Cash generation tells a different story from the income statement. TTM free cash flow grew 113.7% year over year to $2,747.7 million, even as net income fell 46.1%. The increase traces to operating cash flow, which grew 103.8% year over year, while capital expenditure grew only 22.5%, holding capex at 2.0% of revenue. Free cash flow adds back non-cash charges and nets changes in working capital that gross, operating and net margin do not, which is one reason cash generation can expand while reported margins contract. The filings do not indicate which trend, the margin compression or the cash-margin expansion, will dominate going forward.
| Metric (TTM, FY2026 Q3) | Value | Change vs year-ago TTM |
|---|---|---|
| Gross margin | 72.4% | n/a |
| Operating margin | 8.5% | −8.6pp |
| Net margin | 11.4% | −19.6pp |
| Revenue growth (YoY) | 46.3% | +6.8pp vs prior quarter |
| Free cash flow | $2,747.7 million | +113.7% |
| Diluted shares outstanding | — | +21.2% |
What it means for value
Our discounted cash flow model for Synopsys is built from free cash flow, not from reported gross margin, so the compression described above affects model value only through its eventual effect on cash generation, and that measure has so far moved the other way. If the past year's increase in free cash flow margin persists, our model shows the company's value would be 38.8% higher than if the margin had stayed at its year-ago level, holding all other assumptions constant. Each 1 percentage point of lower free cash flow margin would instead lower model value by 3.0%, under the same assumptions. These are model values under stated assumptions, not a comparison with the share price.
For the fuller set of Synopsys's financial history, see the Synopsys company page.
