Keysight Technologies: A High-Conviction Buy Amid AI and Defense Tech Booms

Keysight Technologies (KEYS) just delivered a Q3 2025 earnings report that screams “buy this stock.” Revenue surged 11.1% year-over-year to $1.35 billion, handily beating the Zacks Consensus Estimate of $1.31 billion. Non-GAAP EPS hit $1.72, a 2.38% beat, driven by robust demand in AI data centers and defense modernization. This isn't just a one-quarter win—it's a sign of a company perfectly positioned to ride two of the most powerful secular trends: AI infrastructure and defense tech.

Let's break it down. Keysight's Communications Solutions Group (CSG) raked in $940 million, up 11% year-over-year. The driver? Hyperscalers and silicon designers scrambling to build out AI data centers. Keysight's 1.6 terabit network testing tools and PCIe Gen6 validation with AMD are table stakes for companies like Google, Microsoft, and NVIDIA. These aren't just incremental upgrades—they're foundational for the next wave of AI workloads, from generative AI to autonomous systems. And the numbers don't lie: the AI infrastructure market is projected to grow at a 31.6% CAGR from 2025 to 2030, hitting $933 billion by 2030. Keysight isn't just a participant; it's a critical enabler.

Meanwhile, the Electronic Industrial Solutions Group (EISG) is another cash cow. Revenue jumped 11% to $412 million, fueled by AI-driven semiconductor advancements like high-bandwidth memory and silicon photonics. This segment is a direct beneficiary of the chip industry's $1.5 trillion capital spending spree over the next five years. Keysight's test solutions for advanced nodes and quantum computing (yes, they're working with AIST in Japan on a 1,000-qubit platform) position it as a gatekeeper for the next generation of silicon.

But here's where Keysight truly shines: defense and government (ADG) markets. The CSG's ADG segment grew 8% year-over-year to $296 million, riding the $541 billion global defense spending boom. With U.S. and European governments pouring money into radar systems, electromagnetic spectrum operations, and AI-enabled autonomous drones, Keysight's high-performance system integration is indispensable. The defense sector isn't just a growth tailwind—it's a margin-boosting, recession-resistant revenue stream.

Now, let's talk numbers. Keysight's R&D investment of $919 million in 2024 (18.4% of revenue) is a masterstroke. It's not just about keeping up with the AI arms race—it's about staying ahead. The company's 36% recurring revenue from software and services adds a layer of financial stability, insulating it from cyclical downturns. And with $3.4 billion in cash and equivalents, Keysight has the firepower to weather macroeconomic headwinds, including $75 million in annual tariffs, which it expects to fully mitigate by mid-2026.

The full-year guidance is equally compelling. Keysight now expects 7% revenue growth and 13% non-GAAP EPS growth for 2025. At the midpoint of its fourth-quarter guidance, the company is on track to deliver $1.82 in EPS, a 99% increase from 2024. This isn't just optimism—it's a calculated bet on its dual focus on AI and defense.

For long-term investors, the calculus is simple: Keysight is a high-conviction buy. The AI infrastructure market is a $1 trillion+ opportunity, and defense spending is locked in for the foreseeable future. With a strong balance sheet, a 31.6% CAGR in its core markets, and a management team that's proactive about mitigating risks, this stock is a no-brainer for those looking to capitalize on the next decade of tech-driven growth.

In short, Keysight Technologies isn't just surviving in 2025—it's thriving. For investors with a 5- to 10-year horizon, this is a stock to own, not just watch. The AI and defense booms are here, and Keysight is at the front of the line.