97 Billion Nvidia Partners Just Got a Strong Buy Endorsement (Hint: It's Not Palantir or Micron)

Nvidia (NASDAQ: NVDA) has been making big bets on promising players in the AI race, and one lesser-known partner is starting to catch Wall Street's attention. Synopsys (NASDAQ: SNPS) is emerging as one of Nvidia's key AI partners, giving investors another way to invest in the AI boom beyond Palantir (NASDAQ: PLTR) and Micron (NASDAQ: MU). That's because Synopsys plays a pivotal yet overlooked role in designing the chips powering the AI boom.

How Synopsys powers AI chip design

Synopsys is perhaps one of the biggest under-the-radar beneficiaries of the AI build-out. The company provides the electronic design automation (EDA) software that engineers use to simulate and verify complex chips. That means that as AI requires more complex chips, Synopsys's tools are becoming increasingly important for getting those designs from concept to production.

Image source: Getty Images.

With that, it's no surprise that Nvidia has deepened its relationship with the company. The two companies expanded their strategic partnership around AI-powered engineering, spanning agentic AI, simulation, and chip design, with Nvidia investing $2 billion in Synopsys. The collaboration is helping engineers automate complicated design and verification workflows, making chip development more frictionless.

At its September investor day, Synopsys said AI is creating multiple growth engines across its EDA, silicon intellectual property (IP), and engineering businesses, while its longer-term plan targets mid-teens revenue growth and higher margins.

The opportunity is expanding as AI makes chips more complex while driving demand for custom chips. Hyperscalers and other technology companies are developing purpose-built chips for specific workloads. That creates a growing market for Synopsys's design tools and IP.

But the more interesting part is that AI doesn't seem to be disrupting Synopsys's core business.

The AI boom is expanding Synopsys's opportunity

AI is making chip development more complicated, which means the demand for computing and software needed to design those chips will only keep growing. Synopsys is well-positioned to capture surging demand while integrating AI directly into its engineering workflows.

The company has been rolling out agentic workflows that automate portions of chip design and verification, with its latest Nvidia-powered workflows designed to handle complex engineering tasks with much less human intervention.

From there, Synopsys has been extending that same automation to its biggest partners.

Synopsys and Taiwan Semiconductor Manufacturing recently expanded their collaboration around next-generation AI and high-performance computing chips. Under the deal, chip designers can use Synopsys's tools to design and validate chips built on TSMC's upcoming A14 manufacturing process. The two companies are also adding agentic AI to the chip design process itself, reducing the amount of manual work needed.

Further, Synopsys announced a deal with OpenAI to develop GPT-Synopsys, a specialized AI model for chip design. The goal is to enable AI to perform design and optimization tasks, making chip development faster and more efficient.

The company also struck a multi-year agreement with Amazon to provide silicon IP and AI engineering tools for its custom chips. That matters because silicon is becoming an important piece of AI infrastructure.

Hyperscalers are designing their own chips to complement Nvidia hardware, creating another avenue for Synopsys to benefit from the AI spending cycle. The deal also shifts Synopsys further toward a license-and-royalty model, allowing it to benefit from customers that scale production of their custom chips.

Why Wall Street is betting on this Nvidia partner next

The AI boom is creating winners beyond well beond the more famous companies like Nvidia. Synopsys stands out as a major partner that received a vote of confidence from Nvidia, providing the tools and software that power advanced chip design.

For investors looking beyond companies like Palantir and Micron, the stock offers a compelling way to bet on the next phase of AI spending.

Rick Orford has positions in Amazon. The Motley Fool has positions in and recommends Amazon, Micron Technology, Nvidia, Palantir Technologies, Synopsys, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.