Keysight Technologies: A High-Conviction Play in the Booming Test & Measurement Sector

Keysight Technologies (KEYS) has emerged as a standout performer in the test and measurement sector, delivering a 11% year-over-year revenue increase in Q3 FY25 to $1.35 billion. This outperformance, driven by robust demand across its Communications Solutions Group (CSG) and Electronic Industrial Solutions Group (EISG), underscores the company's ability to capitalize on transformative market tailwinds. With full-year revenue growth guidance raised to 7% and non-GAAP EPS growth projected at 13%, Keysight's strategic alignment with AI, 5G, and aerospace/defense trends positions it as a compelling long-term investment.

Q3 FY25 Outperformance: A Testament to Strategic Execution

Keysight's Q3 results reflect its disciplined execution and market-leading position. The CSG segment, which accounts for 70% of revenue, grew 11% year-over-year to $940 million, fueled by 13% growth in commercial communications and 8% in aerospace/defense. Meanwhile, the EISG segment, a newer but rapidly expanding area, surged 11% to $412 million, driven by semiconductor and automotive innovation.

The company's cash flow strength is equally impressive. With $3.4 billion in cash and equivalents as of July 31, 2025, Keysight has the liquidity to fund R&D, navigate trade uncertainties, and reward shareholders. CEO Satish Dhanasekaran emphasized that the firm's “sustained growth momentum” stems from its ability to address evolving customer needs while maintaining healthy margins.

Strategic Tailwinds: AI, 5G, and Aerospace/Defense

Keysight's growth is not merely cyclical—it is deeply tied to secular trends reshaping global industries.

1. AI-Driven Semiconductor Demand
   The AI revolution is accelerating demand for high-speed data centers, silicon photonics, and advanced interconnect technologies. Keysight's early investments in AI readiness—such as its physical layer solutions and system-level modeling tools—position it to benefit from the $50 billion+ AI infrastructure market. The company's collaboration with AMD to validate PCIe Gen 6 compliance further cements its role in enabling next-generation AI hardware.

2. 5G and Wireless Innovation
   While 5G deployment matures, Keysight is already preparing for 6G. Its recent delivery of a 1.6 terabit protocol layer solution and partnerships with NTT on subterahertz component characterization highlight its leadership in wireless R&D. The company's expertise in direct-to-cell connectivity and low-earth-orbit networks aligns with the growing demand for low-latency, high-bandwidth applications.

3. Aerospace/Defense Resilience
   Global defense budgets, projected to exceed $2 trillion by 2027, are a tailwind for Keysight's high-performance test solutions. The company's platforms for radar, electromagnetic spectrum operations, and satellite communication are critical for modernizing defense systems. Recent wins with U.S. and European prime contractors underscore its competitive edge in this capital-intensive sector.

Investment Thesis: Strong Guidance and Margin Resilience

Keysight's Q4 guidance of $1.37–$1.39 billion in revenue and $1.79–$1.85 in non-GAAP EPS reflects confidence in its growth trajectory. At the midpoint of this range, the company is on track to deliver 13% EPS growth for FY25, outpacing its 5–7% top-line target. This margin expansion is driven by pricing discipline, supply chain optimization, and a shift toward higher-margin software and services.

The company's long-term strategy—focusing on AI, aerospace, and wireless—aligns with multi-decade growth opportunities. Keysight's R&D investments in quantum computing and sovereign research further diversify its addressable market. Meanwhile, its proactive approach to mitigating tariff impacts (with full mitigation expected by Q1 2026) ensures operational resilience.

Risks and Considerations

While Keysight's fundamentals are strong, investors should monitor macroeconomic risks, including potential slowdowns in semiconductor R&D or defense spending. Additionally, competition from regional players in the test and measurement space could pressure pricing in certain segments. However, Keysight's technological differentiation and deep customer relationships provide a durable moat.

Conclusion: A High-Conviction Buy

Keysight Technologies is a rare combination of a cash-generative business and a high-growth innovation engine. Its Q3 FY25 outperformance, coupled with its strategic positioning in AI, 5G, and aerospace/defense, makes it a high-conviction play for investors seeking exposure to the test and measurement sector. With a forward P/E of ~22x and a long-term growth profile exceeding 10%, Keysight offers both near-term visibility and long-term upside.

For those seeking to capitalize on the next wave of technological disruption, Keysight's stock represents a compelling entry point. As the company continues to execute on its vision, it is well-positioned to deliver outsized returns in a sector poised for sustained growth.