KEYS

Before any semiconductor chip, optical transceiver, or networking switch can ship, it must be validated. Does the signal meet spec? Does the power delivery perform under load? Does the chip function at the required speed, temperature, and voltage? Keysight Technologies makes the instruments that answer these questions.

The company operates through two segments. Communications Solutions Group (CSG, $1.124B in Q1 = ~70% of revenue) serves commercial communications ($758M, +33% — wireline now larger than wireless for the first time, driven by AI datacenter) and aerospace/defense/government ($366M, +18% — record Q1 orders driven by U.S. primes, European defense budgets, and Spirent PNT). CSG gross margin was 68.5%, operating margin 27.5%. Electronic Industrial Solutions Group (EISG, $476M = ~30%, record) serves semiconductor (accelerating HBM and AI-driven capacity expansion), general electronics (AI-related PCB complexity driving test intensity), and automotive/energy (stable, with EV/robotaxi manufacturing wins). EISG gross margin was 62.4%, operating margin 27.2%. Both segments grew double digits across all sub-markets.

Keysight's AI exposure runs through multiple channels and was sized by management at ~10% of total company revenue as of Q4 FY2025, with AI-related orders growing "significantly above" the 30% company average in Q1 FY2026. The customer base for AI doubled year-over-year, though the top two Keysight customers are still non-AI accounts — underscoring that AI is broadening, not concentrating, the business. The AI demand spans four drivers management called out: (1) hyperscaler scale-up and scale-out AI cluster validation (full-stack electrical, optical, RF, and protocol test); (2) 800G/1.6T optics ramp with concurrent 3.2T and 448G-per-lane R&D (new Digital Communication Analyzer and Lightwave Component Analyzer products); (3) optical interconnect innovation including co-packaged optics, optical circuit switching, and silicon photonics (served by tunable laser sources and polarization synthesizers); and (4) AI workload emulation solutions that stress-test clusters before live deployment. On the call, CSG President Kailash Narayanan emphasized "hundreds of new components" being designed for AI racks/clusters, creating test demand across both R&D and manufacturing.

Geographically, AI demand that was mostly U.S.-based a year ago is now expanding internationally, particularly into Southeast Asian manufacturing hubs. Management also flagged nascent sovereign AI infrastructure investment outside the U.S. as a future demand vector still "largely ahead of us."

The Q1 FY2026 results were a breakout quarter. Record revenue of $1.60B and orders of $1.65B (1.03x book-to-bill) signaled broad-based demand acceleration — the seventh consecutive quarter of YoY order growth. Wireline revenue surpassed wireless for the first time ever, driven by AI datacenter demand, marking the ninth consecutive quarter of wireline growth. SVP of Global Sales Steve Yoon called the funnel "one of the strongest I've ever seen in my 36 years," with total funnel, new intake, and late-stage funnel all at all-time highs. The stock surged 23% on earnings day and JPMorgan raised its price target to $360. Q2 guidance of $1.70B at the midpoint implies further acceleration to ~30% YoY growth.