Keysight: The Quiet Winner in the AI and Defense Spending Boom

Key Points

• Keysight Technologies has seen its share price run higher recently, with its last earnings report delivering the stock a big gain.
• The company is winning business from two of the world's most important industries: AI and defense.
• Even with improving fundamentals, the stock’s valuation leaves less room for execution missteps if growth moderates.

Keysight Technologies NYSE: KEYS is a somewhat under-the-radar technology stock benefiting significantly from multiple converging tailwinds. The company is seeing growing demand from both artificial intelligence (AI) and defense markets, two of the world’s hottest industries. Interest from these markets has helped Keysight shares soar more than 80% over the past 52 weeks. This includes the huge 23% spike the company saw after its latest earnings report.

So, what exactly does Keysight do, and why exactly has this name been able to put up such strong performance? And, more importantly, is there still room for Keysight to deliver significant gains long-term? Let’s dive into these questions.

Keysight: A Validation Engine Pushing Technology Forward

Keysight uses a combination of hardware, software, and services to help electronics companies design, validate, manufacture, deploy, and optimize their products. Essentially, the firm offers a full-stack solution: from the research phase, to testing prototypes, to product implementation and refinement.

Keysight participates in the electronic automation design (EDA) software industry, which is led by firms such as Synopsys NASDAQ: SNPS and Cadence Design Systems NASDAQ: CDNS. However, Keysight’s sales are much more heavily weighted toward hardware. In its latest earnings call, Keysight said software and services accounted for around 40% of revenue, with hardware making up most of the remaining portion.

This difference in revenue breakdown shows itself in the fact that Keysight’s gross margins tend to sit in the mid-60% range.

While still strong, this is far below the +80% gross margins seen at Synopsys and Cadence, as software delivers higher margins than hardware. However, one advantage of providing more hardware is that it can increase customer stickiness. Keysight’s software becomes more useful as it integrates with a large base of hardware products, making customers more likely to use its full range of solutions.

All of this isn’t to say that Keysight, Synopsys, and Cadence are direct competitors, although their businesses overlap. Keysight positions itself, Synopsys, and Cadence as providing complementary offerings.

Synopsys and Cadence focus on modeling how chips and systems should behave in virtual environments before customers produce a physical product. Meanwhile, Keysight focuses on testing and validating how technologies actually perform under real-world physical conditions.

For investors, the takeaway is that Keysight has developed its own niche that gives it an important role in electronic development, focused on validating real-world performance. They work to ensure that complex technologies across AI infrastructure, 5G, 6G, defense, and automotive function as intended after their design.

KEYS Beats Big, Ups Guidance as Big Tailwinds Drive Growth

Keysight performed very well in its latest quarter, with revenues rising 23% year over year to $1.6 billion. This marked the company’s highest growth rate since 2021 and solidly beat estimates, which called for growth of around 19%.

Adjusted earnings per share (EPS) rose by 19% to $2.17. This smashed estimates of $2, which implied growth of only 10%.

Guidance was even more impressive. The company now expects revenue and earnings to grow by 20% during the year. This compares with the company’s previous guidance, which expected revenue growth near or above 7%, excluding acquisitions. The new guidance includes acquisitions, but still represents a large improvement in Keysight’s core growth expectations. The combination of Keysight’s large beat-and-raise allowed the stock to surge in response.

The company noted that it is engaging with all hyperscalers as they rapidly scale their AI infrastructure. As companies look to design and deploy AI networking solutions, Keysight is participating in the end-to-end validation of these systems. Technological development in networking is also driving more testing opportunities. In Q4 2025, Keysight collaborated with Broadcom NASDAQ: AVGO to validate its next-generation 1.6 terabit networking silicon and custom AI accelerators.

In the final quarter of 2025, KEYS estimated that AI drove around 10% of revenue. This shows that AI remains a relatively small percentage of the overall business, providing potential for significant growth ahead.

The company also posted record revenue in its Aerospace, Defense, and Government end market, which grew by 18%. Keysight is seeing demand from U.S. prime defense contractors, as well as “robust, broad-based activity in Europe." This comes as European defense budgets are on the rise.

Importantly, overall orders grew by 30%, well above revenue growth, indicating that demand is accelerating. In Q2 2026, Keysight forecasts revenue growth of 30%.

KEYS: AI and Defense Enabler With Valuation Question Marks

The MarketBeat consensus price target on Keysight sits near $295, a figure that implies only around 3% upside in shares. However, price targets moved up substantially after the company’s latest report. The average of updated targets is approximately $308, implying 7% upside.

At present, Keysight has grown its free cash flow by a compound annual growth rate near 18%, its highest level ever. The company’s current valuation implies that growth will persist at or near this rate for multiple years to come.

While Keysight is operating at historically strong levels, meeting this hurdle will be difficult. The firm's elevated valuation makes it a somewhat risky play.

Still, the company is sitting at the intersection of two very powerful trends: AI and defense modernization. These factors could prove enough to enable significant gains going forward. Overall, Keysight is an intriguing stock to watch, and one that could present a compelling opportunity should its share price retreat meaningfully.