Keysight Technologies: Riding AI and Defense Waves Amid Tariff Tempests

The tech sector is no stranger to headwinds, but few companies are better positioned to turn geopolitical turbulence into tailwinds than Keysight Technologies (KEYS). As tariffs and macroeconomic uncertainty plague global supply chains, Keysight’s diversified end markets—AI-driven data centers, 5G/6G infrastructure, and aerospace/defense—are proving resilient. With a pending Spirent acquisition, a fortress balance sheet, and a track record of margin discipline, Keysight is primed to outperform peers in the years ahead. Here’s why investors should take notice now.

Navigating Tariff Headwinds with Precision

Keysight’s Q1 2025 results underscore its ability to navigate headwinds. Revenue rose 3% year-over-year to $1.30 billion, while non-GAAP EPS jumped 11% to $1.82. Even as new tariffs added $7 million in Q2 costs—reducing EPS by $0.04—management has implemented mitigations: price hikes, supply chain reconfiguration, and cost discipline. The company projects annual tariff exposure of $75–100 million, peaking in Q3. Yet, with operating cash flow up 15% to $378 million, Keysight retains ample liquidity to weather the storm.

AI and Defense: The Dual Tailwinds Igniting Growth

The real story lies in Keysight’s end markets. Its Communications Solutions Group (CSG), which accounts for ~68% of revenue, is booming. Q2 CSG revenue surged 9% to $913 million, fueled by commercial communications (driven by AI/data center demand) and aerospace/defense/government. The latter segment is particularly robust: U.S. defense spending on advanced systems like 6G and high-performance computing is accelerating, and Keysight’s test-and-measurement tools are critical to these projects.

Meanwhile, the Electronic Industrial Solutions Group (EISG), though softer in automotive and energy, is benefiting from semiconductor and general electronics demand. A would show this divergence, but the takeaway is clear: Keysight’s portfolio is engineered for the tech sector’s most critical growth areas.

The Spirent Acquisition: A Game-Changer in the Making

The $840 million Spirent acquisition—set to close in Q3—adds critical mass to Keysight’s communications and AI capabilities. Spirent’s expertise in network testing and AI-driven infrastructure will amplify Keysight’s leadership in 5G/6G and hyperscale data centers. Post-deal, the combined entity will capture ~40% of the global network test market, with recurring software/services revenue (already 36% of total sales) poised to climb further. Analysts estimate Spirent could add $0.50–$0.75 to EPS annually by 2026, making this a near-term catalyst.

Balance Sheet Strength and Shareholder Returns

Keysight’s $2.06 billion cash balance and minimal debt provide a cushion for acquisitions and dividends. The company returned $150 million to shareholders via buybacks in Q1 alone, and its free cash flow (up 23% to $346 million in Q1) suggests this trend will continue.

Risks? Yes, but Already Priced In

No company is immune to macro risks. Geopolitical tensions, trade policies, and a potential slowdown in semiconductor demand could pressure margins. However, these risks are reflected in Keysight’s current valuation: the stock trades at 25x forward EPS, below its five-year average of 28x. With ~28% of revenue recurring and ~14% operating margin expansion since 2020, Keysight has a proven playbook for stability.

Conclusion: A Compelling Risk-Adjusted Opportunity

Keysight isn’t just surviving—it’s thriving. Its strategic acquisitions, margin resilience, and exposure to AI/defense are unmatched in the test-and-measurement space. With Spirent’s synergies materializing in 2026 and tariff mitigation strategies in place, the next 18 months could see EPS growth accelerate to 10%+ annually. For investors seeking a tech stock with both defensive qualities and offensive growth, Keysight offers a rare combination of safety and upside. The time to act is now.