Keysight Technologies: Navigating Tariffs and Dominating the AI Infrastructure Surge

Keysight Technologies (KEYS) has delivered a masterclass in operational resilience, with Q2 2025 results that not only beat expectations but also set the stage for sustained leadership in a rapidly evolving tech landscape. The company’s upwardly revised growth projections and robust order pipeline signal a strategic shift toward capturing the $100+ billion opportunity in AI-driven infrastructure—a move that could cement its position as the gold standard for test and measurement solutions.

A Quarter of Precision Execution
Keysight’s Q2 revenue of $1.306 billion marked a 7% year-over-year increase, with orders surging 8% to $1.316 billion. This performance was driven by double-digit growth in its Communications Solutions Group (CSG), which saw commercial communications revenue rise 9% amid soaring demand for data center infrastructure and AI network technologies. The segment’s 67% margin highlights the profitability of these high-growth areas. Meanwhile, the Electronic Industrial Solutions Group (EISG) grew 5%, demonstrating the company’s ability to balance sector-specific headwinds (e.g., automotive declines) with gains in semiconductors and industrial electronics.

Tariffs as a Speed Bump, Not a Roadblock
While new tariffs added $7 million in Q2 costs, Keysight’s mitigation strategy—global supply chain reconfiguration and pricing adjustments—aims to neutralize the $75–$100 million annual tariff impact by early 2026. Notably, less than 10% of exposure relates to U.S.-China trade, limiting geopolitical vulnerability. The company’s $457 million in free cash flow and $3.118 billion in cash provide ample liquidity to weather these near-term pressures.

The AI Infrastructure Play: Keysight’s Secret Weapon
The real story lies in Keysight’s strategic pivot toward AI-driven infrastructure. Its wireline business, which grew 20% in H1 2025, is a linchpin for 400/800 gigabit Ethernet and silicon photonics solutions—critical for the next-generation data centers powering AI. The pending acquisition of Spirent (set to close in Q3) adds critical scale in network testing, directly addressing the $20 billion market for 5G and 6G validation tools.

Software: The Recurring Revenue Engine
Software and services now account for 36% of revenue, with 28% recurring. This segment’s double-digit growth in simulation and design engineering software underscores a shift toward subscription-based models, a low-risk, high-margin strategy that insulates cash flows from macro volatility.

Why Now Is the Time to Invest
Keysight’s valuation remains compelling. At current levels (~$144/share), the stock trades at 25x trailing EPS, below its five-year average of 28x. With FY2025 EPS expected to exceed the 10% annual growth target and a 3.2% dividend yield, the stock offers both growth and income appeal.

Risks on the Radar
Geopolitical risks, such as U.S. defense budget uncertainty, remain a wildcard. However, the company’s backlog of prime contractor deals and minimal exposure to U.S.-China trade friction mitigate these concerns.

Conclusion: A Decade-Long Opportunity in Testing
Keysight is not just a test equipment supplier—it’s a critical partner for every major player in AI, 5G, and high-performance computing. With $1.3 billion in orders flowing into Q3 and a clear path to offset tariffs, the company is primed to outperform even as peers face margin pressure. For investors seeking a leveraged play on the AI revolution, KEYS offers a rare combination of near-term profitability and long-term dominance. The stock is a buy today.

Action: Consider initiating a position in KEYS at current levels, with a 12-month price target of $175.