Has Keysight Technologies (KEYS) Turned the Corner on Growth

Key Takeaways

• Keysight Technologies delivered a robust Q4 FY2025, exceeding guidance with 10% revenue growth and 16% EPS increase, fueled by secular tailwinds in AI and next-generation wireless.
• The company's strategic positioning at the intersection of AI data center build-outs and 5G/6G network deployments creates a sustained demand for its high-performance test and measurement solutions.
• Despite a premium valuation, Keysight's strong financial execution, significant order backlog, and strategic investments in R&D and acquisitions position it for continued long-term growth, albeit with near-term integration challenges.

Has Keysight Technologies (KEYS) Turned the Corner on Growth?

Keysight Technologies (NYSE: KEYS) delivered a compelling performance in its fourth quarter of fiscal year 2025, signaling a potential inflection point for the test and measurement giant. The company reported revenue of $1.419 billion, a 10% increase year-over-year on a reported basis, comfortably surpassing the high end of its guidance. This strong finish capped a year of building momentum, with full-year revenue reaching $5.375 billion, up 8% as reported.

The real story, however, lies beneath the headline numbers: Keysight’s earnings per share (EPS) surged 16% year-over-year to $1.91 for the quarter, and 14% for the full year to $7.16. This impressive profitability was achieved alongside a robust gross margin of 65% and an operating margin of 26% for the full fiscal year. Management highlighted that AI-driven demand and secular industry innovation were key catalysts, producing double-digit order and revenue growth across both major business segments.

Keysight’s leadership in differentiated solutions is clearly driving demand across its diverse markets. The company’s portfolio is enabling major innovation waves, including AI and accelerated compute, non-terrestrial networks, 6G, next-gen semiconductors, and defense modernization. This strategic alignment with critical technological shifts positions Keysight not merely as a beneficiary, but as an essential enabler of these advancements, providing the fundamental tools required for validation and deployment.

The market has responded positively, with Keysight shares currently trading at $243.54, reflecting a 1.67% increase from the previous close. The stock has shown significant upward momentum, trading near its 52-week high of $248.00, a testament to investor confidence in its growth trajectory. With a market capitalization of $41.84 billion, Keysight remains a dominant force in the electronic test and measurement sector.

What are the Key Growth Drivers for Keysight?

Keysight Technologies is strategically positioned at the nexus of two monumental technological S-curves: the explosive growth of artificial intelligence and the rapid evolution of next-generation wireless communications, including 5G and the forthcoming 6G. These are not isolated trends but converging forces that are generating unprecedented demand for the company's sophisticated test and measurement infrastructure. Keysight’s role is to provide the essential "quality control layer," ensuring these complex systems function at scale.

The first major driver is the AI data center build-out. This represents a paradigm shift in compute architecture, moving from general-purpose servers to highly specialized AI accelerators. The validation complexity of these advanced chips and the entire AI infrastructure stack—from design to system integration—is orders of magnitude higher than previous generations. Keysight has responded by introducing new validation solutions to overcome bandwidth, latency, and interoperability bottlenecks, supporting standards like UAlink™200G and PCIe®7.0. These offerings accelerate the deployment of high-performance AI infrastructure, with solutions like the PCIe 7.0 Transmitter Test supporting speeds up to 128GT/s.

Secondly, the acceleration of 5G and the transition toward 6G are creating another powerful demand wave. This extends beyond faster phones to include the deployment of 5G non-terrestrial networks (NTN) via satellites and high-altitude platforms. These space-based and high-frequency communications necessitate entirely new test solutions for signal integrity, interference, and performance under extreme conditions. Keysight is a recognized leader in the 5G testing equipment market, competing with major players like Anritsu and Rohde & Schwarz. The company’s solutions are critical for network construction, maintenance, and optimization, with the 5G testing market projected to grow at a CAGR of 8.22% between 2025 and 2034.

The company's Communications Solutions Group (CSG), which contributed approximately 70% of Q4 FY25 revenue, is the direct beneficiary of these investments. This segment saw 11% year-over-year revenue growth in the quarter, a clear signal that demand for validating these complex systems is accelerating. Keysight's order backlog reached $2.7 billion, up 14% year-over-year, underscoring the strength of this AI-driven demand and providing strong revenue visibility for the coming quarters.

How Strong is Keysight's Financial Performance and Capital Allocation?

Keysight Technologies' financial performance in fiscal year 2025 demonstrated robust growth and strong profitability, reinforcing its position as a leader in the test and measurement industry. For the full year, the company generated revenue of $5.375 billion, an 8% increase year-over-year. This growth translated into impressive earnings, with full-year EPS of $7.16, up 14% from the prior year. The company's gross margin remained healthy at 65%, while operating margin stood at 26%, showcasing efficient cost management and pricing power.

Looking at the trailing twelve months (TTM), Keysight's fundamentals remain solid. The TTM gross margin is 62.1%, operating margin is 16.3%, and net margin is 15.7%. These margins, while slightly lower than the full-year reported figures due to TTM methodology, still indicate a highly profitable business model. The company's TTM EPS stands at $4.89, with revenue per share at $31.07. Keysight also exhibits strong returns on capital, with TTM ROE at 15.2%, ROA at 7.5%, and ROIC at 7.4%, reflecting effective asset utilization.

Keysight's ability to generate significant free cash flow (FCF) is a cornerstone of its financial strength. For FY2025, the company delivered $1.28 billion in free cash flow, demonstrating excellent conversion of net income into cash. Management expects continued strong FCF conversion in fiscal 2026, even with some integration-related expenses from recent acquisitions. This robust cash generation supports Keysight's capital allocation strategy, which includes strategic investments in R&D and significant capital returns to shareholders.

The company's commitment to shareholder returns is evident in its share repurchase programs. Keysight completed a prior buyback program, repurchasing 9,567,032 shares (or 5.46% of shares outstanding) for $1.39 billion. On November 24, 2025, the Board approved a new share repurchase authorization of up to $1.5 billion, further underscoring its confidence in the company's intrinsic value and its dedication to enhancing shareholder value. These buybacks, coupled with a healthy balance sheet (D/E of 0.51 and Current Ratio of 2.35), provide financial flexibility for future growth initiatives and market opportunities.

Who are Keysight's Main Competitors and How Does it Maintain its Edge?

Keysight Technologies operates in a highly competitive electronic test and measurement market, facing off against a diverse group of established incumbents and specialized players. Key rivals in the communications test segment include Anritsu Corporation, Rohde & Schwarz GmbH & Co. KG, and Tektronix, Inc. These companies offer a broad spectrum of electronic measurement instruments and systems that directly challenge Keysight's product portfolio, particularly in areas like RF/microwave, 5G/6G, and over-the-air (OTA) testing.

Beyond direct communications test, Keysight also competes with broader industry players like Teledyne Technologies, Teradyne, and Fortive, which offer electronic equipment and instruments across various sectors. The competitive landscape is further shaped by modular/software-centric rivals such as NI (Emerson), which focuses on PXI and automated test platforms, and the recently consolidated VIAVI Solutions and Spirent Communications, which have strengthened their wireline/wireless and security test capabilities, intensifying competition for carrier and cloud provider spending.

Despite this intense competition, Keysight maintains a strong leadership position, commanding a market share of 29.87% as of Q1 2025. Its competitive edge stems from several strategic pillars. Firstly, Keysight boasts deep intellectual property in high-performance instruments and software integration, offering a full lifecycle platform from design to deployment. The company's premium positioning is reinforced by its ability to deliver first-to-market solutions for emerging technologies like 6G and advanced AI accelerators.

Secondly, Keysight's broad end-market exposure across communications, aerospace & defense, automotive, and semiconductors provides diversification and resilience. Its ecosystem partnerships accelerate the adoption of its cutting-edge test solutions, while a growing services business, fueled by robust demand for KeysightCare premium offerings, enhances customer stickiness and recurring revenue. This shift towards a higher mix of software and subscription revenue, though not yet fully quantified, is a critical strategic move, providing more predictable cash flows and greater visibility for long-term planning.

What are the Risks and Valuation Considerations for KEYS?

While Keysight Technologies exhibits strong growth potential, investors must consider several risks and its current valuation. The primary downside risk is a potential slowdown in capital expenditure from its core markets. The test and measurement industry is a capital-intensive bellwether; a pullback in spending by semiconductor manufacturers or telecom operators due to macroeconomic uncertainties or sector-specific downturns would directly pressure Keysight's revenue across its Communications Solutions Group (CSG) and Electronic Industrial Solutions Group (EISG) segments. Geopolitical tensions can also impact customer expenditure and supply chain stability.

Execution challenges related to recent acquisitions also pose a risk. Keysight expects the integration of acquired businesses to take 12 to 18 months to fully realize profit margin improvements. This will result in "mild" EPS dilution early in fiscal year 2026 before earnings benefits accrue later in the year and into 2027. While management expects to realize over $100 million in synergies and still achieve FY2026 EPS growth at or above its long-term 10% target, any delays or unforeseen difficulties in integrating these assets, particularly in aligning systems and getting them into Keysight's ERP environment, could impact financial performance.

From a valuation perspective, Keysight currently trades at a TTM P/E ratio of 49.80. This is a premium multiple, significantly higher than the broader market and many industrial peers, reflecting the market's high growth expectations for the company's exposure to AI and 5G/6G. The stock's current price of $243.54 is above the analyst consensus price target of $232.38 and the median target of $228.50, though it remains below the high target of $257.00. This premium valuation leaves little room for error, demanding flawless execution and consistent acceleration toward the next phase of its technological S-curves.

Analysts maintain a "Buy" consensus rating for KEYS, with 12 "Buy" ratings and 3 "Hold" ratings out of 15 analysts. However, the incremental nature of recent price target adjustments suggests some analysts prefer to see further evidence of sustained revenue and margin trends before taking a more aggressive stance. The company's ability to consistently accelerate growth beyond its long-term 5%-7% target will be crucial for justifying its current valuation and driving further share price appreciation.

What Does This Mean for Investors?

Keysight Technologies stands at a pivotal juncture, poised to capitalize on the transformative shifts driven by artificial intelligence and next-generation wireless technologies. The company's strong Q4 FY2025 performance, highlighted by double-digit revenue and EPS growth, underscores its critical role as an enabler of these innovation waves. Its robust order backlog of $2.7 billion and strategic investments in cutting-edge validation solutions for AI data centers and 5G/6G networks provide a solid foundation for continued momentum.

For investors, Keysight represents a compelling play on the infrastructure layer of the digital economy. The company's shift towards a higher mix of software and services revenue promises more predictable, recurring cash flows, enhancing its financial resilience. While the current premium valuation demands close scrutiny of execution, Keysight’s consistent innovation, strong financial health, and commitment to shareholder returns through significant buyback programs paint a positive long-term picture.

The key will be monitoring Keysight's ability to navigate integration challenges from recent acquisitions and sustain its growth trajectory in a competitive environment. Any deceleration in order growth, particularly within the Communications Solutions Group, or delays in new product launches could trigger a re-evaluation by the market. However, with a strong "Buy" consensus from Wall Street and management's upbeat outlook, Keysight appears well-positioned to deliver long-term shareholder value as it continues to provide the essential tools for shaping our technological future.

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