KEYS Q3 Deep Dive: AI, Acquisitions, and Broad-Based Demand Drive Positive Outlook

Electronic measurement provider Keysight (NYSE:KEYS) reported revenue ahead of Wall Streets expectations in Q3 CY2025, with sales up 10.3% year on year to $1.42 billion. On top of that, next quarter’s revenue guidance ($1.54 billion at the midpoint) was surprisingly good and 7.9% above what analysts were expecting. Its non-GAAP profit of $1.91 per share was 4.2% above analysts’ consensus estimates.

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StockStory’s Take

Keysight’s third quarter results were met with a positive market reaction, reflecting growth across multiple end markets and strong order momentum. Management attributed revenue gains to robust demand in AI infrastructure, next-generation communications, and defense modernization. CEO Satish Dhanasekaran emphasized, “Orders grew 14%, revenue increased 10%, and EPS rose 16%.” The company also benefited from contributions by recent acquisitions, which expanded its software-centric solutions and enhanced its positioning in critical technology domains. Growth in both the Communications Solutions and Electronic Industrial Solutions groups was cited as broad-based, with notable strength in wireline and wireless applications.

Looking ahead, Keysight’s guidance is underpinned by several factors, including anticipated synergies from recent acquisitions, continued investments in research and development, and ongoing demand for AI, semiconductor, and advanced communications solutions. Management expects these drivers to support above-average revenue growth and steady improvements in profitability, with CFO Neil Dougherty stating, “We expect FY 2026 revenue growth, excluding acquisitions, to be at or above the high end of our 5% to 7% long-term target.” Keysight’s backlog, robust sales funnel, and progress in mitigating tariff impacts were also highlighted as contributors to the company’s forward outlook.

Key Insights from Management’s Remarks

Keysight’s management linked quarterly performance to demand for advanced test solutions in AI, communications, and defense, while recent acquisitions broadened product capabilities and addressable markets.

• AI infrastructure demand: The surge in AI infrastructure build-outs, including accelerated compute and optical networking upgrades, drove higher demand for Keysight’s test and validation solutions. Management noted that AI-related orders contributed significantly to wireline segment growth and are expected to remain a key growth engine.
• Acquisition impact: The acquisitions of Spirent, Synopsys Optical Solutions Group, and ANSYS PowerArtist added specialized capabilities in precision location, photonics, and power analysis. These were described as “expanding customer value” and enhancing Keysight’s market reach in both communications and industrial segments.
• Wireline and wireless strength: Wireline orders and revenue saw double-digit growth, supported by technology refresh cycles in networking silicon and AI accelerators. Wireless also outperformed, with stable 5G demand, early 6G research, and increased engagement in non-terrestrial networks, such as low earth orbit (LEO) satellite connectivity.
• Defense and aerospace momentum: The aerospace, defense, and government segment achieved record orders, driven by modernization programs and new wins with prime contractors. Management highlighted growing opportunities tied to advanced radar, spectrum analysis, and satellite communications.
• Broad-based industrial growth: The Electronic Industrial Solutions Group showed solid gains in general electronics, semiconductors, and digital health. AI-driven innovation and expanded semiconductor testing contributed to double-digit growth in key markets, particularly outside the U.S.

Drivers of Future Performance

Management expects continued momentum as AI, next-generation connectivity, and integration of acquisitions drive growth, with ongoing R&D investment and tariff mitigation shaping profitability.

• AI and next-gen communications adoption: Keysight’s outlook relies on sustained investment in AI, 5G, and early 6G research, with management citing a robust pipeline in both wireline and wireless infrastructure. Partnerships with leading industry players and involvement in standards-setting bodies are expected to secure long-term demand.
• Synergy realization from acquisitions: The integration of recent acquisitions is projected to generate over $100 million in cost synergies, with management stating that operating margins from acquired businesses should approach Keysight’s corporate average over a 12–18 month period. While initial earnings dilution is expected, full integration is anticipated to drive incremental profitability.
• Tariff mitigation and margin recovery: Management reported faster-than-expected mitigation of recent tariff increases, aided by pricing actions and operational adjustments. This is expected to support margin improvement and offset external cost pressures in the coming quarters.

Catalysts in Upcoming Quarters

In the quarters ahead, the StockStory team will focus on (1) Keysight’s ability to sustain momentum in AI and communications test solutions, (2) the pace and impact of integration and synergy capture from recent acquisitions, and (3) progress in margin recovery as tariff mitigation strategies take full effect. Execution on new product introductions and expansion in defense and industrial end markets will also be important markers to watch.

Keysight currently trades at $203.31, up from $177.67 just before the earnings. Is the company at an inflection point that warrants a buy or sell? Find out in our full research report (it’s free for active Edge members).

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