Keysight Technologies: Capturing the Momentum in High-Growth Tech Sectors

In a landscape where technological innovation drives both opportunity and disruption, few companies exemplify sustainable earnings momentum better than Keysight Technologies (KEYS). The test and measurement leader’s Q2 2025 results not only exceeded expectations but also underscored its strategic positioning at the intersection of 5G, AI, and semiconductor advancements—sectors critical to the next wave of global technological progress. Let’s dissect the numbers, valuation dynamics, and long-term tailwinds that make KEYS a compelling buy for investors seeking growth with resilience.

Earnings Momentum: A Foundation of Consistency

Keysight delivered a Q2 performance that reinforces its status as a high-growth outlier. Revenue hit $1.31 billion, a 7% year-over-year increase, while non-GAAP EPS surged to $1.70, surpassing even the high end of guidance. This growth is not merely cyclical; it reflects a structural shift in demand for the company’s solutions across key industries.

The Communications Solutions Group (CSG)—which caters to 5G infrastructure, aerospace, and defense—was the star, with 9% revenue growth. This aligns with global 5G rollouts and the militarization of technology, where reliable testing is non-negotiable. Meanwhile, the Electronic Industrial Solutions Group (EISG), despite headwinds in automotive and energy, still grew 5%, driven by semiconductor innovation and AI-driven electronics.

Why 5G, AI, and Semiconductors Are Fueling the Fire

The demand for test and measurement solutions is inherently tied to the pace of innovation in these sectors:
1. 5G & Beyond: With 400G/800G Ethernet and non-terrestrial networks (NTNs) becoming mainstream, telecom operators and hardware manufacturers rely on Keysight’s tools to ensure interoperability and scalability. The company’s recent partnerships with major defense agencies—such as a European contract for secure communications—highlight its expanding role in national security infrastructure.
2. AI Infrastructure: AI’s rise requires robust data center architectures, pushing demand for high-speed connectivity and advanced semiconductor chips. Keysight’s solutions for validating 400G+ networking gear and AI chip performance are now table stakes for tech giants like NVIDIA and AMD.
3. Semiconductor Complexity: As chip geometries shrink and advanced packaging techniques (e.g., 3D ICs) become standard, manufacturers need precise measurement tools to troubleshoot and optimize designs. Keysight’s recent acquisitions in this space—such as the pending Spirent deal—are strategic moves to cement its leadership.

Valuation: A Discounted Price for a Premium Growth Story

Despite its outperformance, Keysight’s valuation remains compelling. At a current stock price of $162.80, the company trades at 18x forward non-GAAP EPS, a discount to its historical average and peers in the semiconductor and instrumentation space. Analysts’ average price target of $181.65 suggests 11.58% upside, while the highest estimate of $200 hints at further appreciation if growth accelerates.

Key metrics to note:
- Operating margin expansion: From 24% to 25% YoY, reflecting cost discipline and scale advantages.
- Free cash flow: A staggering $457 million in Q2, up from $74 million a year ago, underscores its ability to fund innovation and shareholder returns.
- Share repurchases: $150 million in Q2 alone, with ample dry powder ($3.12 billion cash) to continue buybacks or pursue strategic acquisitions.

The PEG ratio—a critical gauge for growth stocks—favors KEYS: its 1.5x PEG (assuming 10% EPS growth) is reasonable for a firm with a 5-7% long-term revenue target and a track record of exceeding it.

Risks? Yes, but Manageable

No investment is risk-free, and Keysight faces headwinds:
- Tariffs and geopolitics: While annualized tariff costs ($75–$100 million) are manageable, ongoing supply chain realignment could strain margins.
- Macroeconomic softness: A slowdown in global capital spending could dampen demand, though Keysight’s Q2 results show no material impact yet.

However, the company’s low China exposure (operations shifted to Southeast Asia) and defensive contracts (e.g., defense, AI infrastructure) mitigate these risks.

The Bottom Line: A Long-Term Growth Play at a Bargain Price

Keysight’s Q2 results are not just a snapshot of success—they’re a blueprint for sustained growth. With earnings momentum in high-margin segments, a fortress balance sheet, and secular tailwinds in AI and 5G, this is a company primed to capitalize on the next decade’s tech revolution.

Investors should act now. At current levels, KEYS offers both growth and value: a stock poised to deliver double-digit returns as it solidifies its position as the indispensable partner for innovators worldwide.

The path forward is clear: Buy KEYS for a portfolio looking to capture the next wave of technological progress.