Keysight Technologies (KEYS) Outperforms Estimates: Can This Earnings Momentum Sustain a Buy Opportunity?

Keysight Technologies (KEYS) has emerged as a standout performer in the tech sector, delivering a third-quarter 2025 earnings report that exceeded expectations on both revenue and earnings per share (EPS). With revenue climbing 11% year-over-year to $1.35 billion and non-GAAP EPS hitting $1.72 (a 2.99% beat), the company has reinforced its position as a leader in the digital infrastructure and industrial electronics markets. But can this momentum translate into a sustainable buy opportunity for investors?

Q3 2025: A Masterclass in Execution

Keysight's Q3 results were driven by robust demand in its core markets. The Communications Solutions Group (CSG) reported $940 million in revenue, a 11% increase, fueled by 13% growth in commercial communications and 8% in aerospace and defense. Meanwhile, the Electronic Industrial Solutions Group (EISG) saw $412 million in revenue, up 11%, as semiconductor and automotive sectors expanded. These gains were underpinned by Keysight's strategic focus on AI-driven infrastructure and its partnerships with industry leaders like AMD for PCIe Gen 6 compliance.

The company's financial discipline also shone through. Operating margins hit 25%, up 60 basis points from the prior year, while free cash flow surged to $291 million. With $3.4 billion in cash and equivalents, Keysight's balance sheet is a fortress, providing flexibility for R&D, dividends, or strategic acquisitions.

Full-Year Guidance: A Signal of Confidence

Keysight raised its full-year 2025 revenue growth forecast to 7%, with non-GAAP EPS growth projected at ~13% at the midpoint of its Q4 guidance. This optimism is rooted in sustained demand for its AI and 5G solutions, as well as its expanding footprint in quantum computing and automotive testing. The company's Q4 guidance of $1.37–$1.39 billion in revenue and $1.79–$1.85 in non-GAAP EPS suggests management is betting on continued momentum.

Historically, Keysight has demonstrated a strong correlation between earnings surprises and stock price performance. Over the past five years, the stock has averaged a 4.54% EPS beat, with positive surprises often followed by modest price gains. However, the immediate post-earnings reaction in Q3—a 0.58% decline—highlights the influence of macroeconomic headwinds, such as inflation and geopolitical tensions, which can temper short-term enthusiasm.

Earnings Momentum vs. Market Realities

While Keysight's fundamentals are compelling, investors must weigh its earnings momentum against broader market dynamics. The stock has traded within a 52-week range of $121.43 to $186.20, currently at $163.40. Analysts project a 13% EPS growth for FY 2025, but the stock's 1.72% annual return in 2025 (as of August 15) suggests a more measured trajectory.

The key question is whether Keysight's earnings revisions will drive a re-rating of its stock. Historically, the company's stock has underperformed relative to its earnings growth, partly due to its exposure to cyclical sectors like semiconductors. However, its pivot to high-growth areas like AI and quantum computing could decouple its valuation from traditional cycles.

Risks and Opportunities

Keysight faces risks, including supply chain disruptions, regulatory shifts, and competition from rivals like Tektronix and Rohde & Schwarz. Tariff impacts, though expected to be mitigated by Q1 2026, remain a near-term concern. Yet, the company's R&D investments and strategic partnerships position it to capitalize on long-term trends.

For investors, the current valuation offers a compelling entry point. At a price-to-earnings (P/E) ratio of ~28x (based on FY 2025 guidance), Keysight trades at a discount to its five-year average of 32x. With a 10-year CAGR of 10.76% in EPS and a strong cash position, the stock appears undervalued relative to its growth potential.

Investment Thesis

Keysight's Q3 results and revised guidance underscore its ability to execute in a challenging environment. While macroeconomic factors may delay a stock price breakout, the company's alignment with AI and industrial innovation creates a durable growth story. Investors with a 12–18 month horizon should consider a position in KEYS, particularly if the stock dips below $155, a level that would reflect a more aggressive discount to its intrinsic value.

In conclusion, Keysight Technologies is a buy for those who can stomach near-term volatility and are positioned to benefit from its long-term secular trends. The earnings momentum is real, and with the right catalysts—such as a surge in AI infrastructure spending—the stock could deliver outsized returns.

Final Verdict: Buy with a 12–18 month time horizon. Target price: $185–$190.