Keysight (KEYS) Raised Its Outlook. Is AI Testing Becoming a Durable Growth Engine?

Keysight (KEYS) Raised Its Outlook. Is AI Testing Becoming a Durable Growth Engine?

Jeff Lewis

Sat, August 22, 2026 at 1:45 AM GMT+3 4 min read

• KEYS -0.12%

Keysight Technologies, Inc. (NYSE:KEYS) delivered a fiscal third quarter that made AI testing look increasingly central to its growth story. Revenue increased 36.5% to $1.846 billion, while non-GAAP earnings rose 79% to $3.07 per share and exceeded consensus estimates. Management forecast fourth-quarter non-GAAP earnings of $3.34 to $3.40 per share and revenue of $1.93 billion to $1.95 billion, both above consensus estimates. Shares gained nearly 5% after hours on August 18.

The question is whether Keysight Technologies, Inc. (NYSE:KEYS) is entering a durable expansion or benefiting from a concentrated wave of AI data-center investment. Orders increased 56% to $2.091 billion, marking the second consecutive quarter above $2 billion and extending visibility beyond revenue already recognized.

Communications Solutions Group revenue reached $1.345 billion, up 43% on a reported basis and 36% on a core basis. Keysight's core measure excludes currency effects and acquisitions or divestitures completed during the preceding 12 months. Commercial communications revenue surged 56% to $1.006 billion, while aerospace, defense and government revenue rose 14%. Electronic Industrial Solutions Group revenue increased 21%.

BULL CASE: TESTING COMPLEXITY CAN OUTLAST ONE PRODUCT CYCLE

Keysight Technologies, Inc. (NYSE:KEYS) participates across the AI infrastructure development process, from pre-silicon design and chip validation to testing transceivers, high-speed networks, servers and complete data-center systems. Faster interconnects and more complex architectures create additional validation requirements at each stage.

That breadth means Keysight Technologies, Inc. (NYSE:KEYS) is not dependent on the commercial success of one chip or networking product. Customers must test compatibility, performance, power efficiency, and security as systems move from design into deployment. Those requirements can continue through successive hardware transitions even as leadership changes among individual suppliers.

Profitability also strengthened. Keysight Technologies, Inc. (NYSE:KEYS) expanded Communications Solutions Group's non-GAAP operating margin to 34% from 26%, while the Electronic Industrial Solutions Group's margin increased to 31% from 22%. Free cash flow, a non-GAAP measure, rose to $403 million from $291 million.

BEAR CASE: GROWTH REMAINS CONCENTRATED

Communications Solutions Group represented approximately 73% of quarterly revenue, while commercial communications supplied nearly three-quarters of the company's year-over-year revenue increase. Keysight Technologies, Inc. (NYSE:KEYS) reported that no single customer generated more than 10% of revenue, but much of the acceleration still traces back to the same AI infrastructure spending cycle.

The seven-point gap between reported and core Communications Solutions Group growth reflects the combined effects of acquisitions, recent divestitures and currency movements. Keysight did not disclose the separate revenue contribution of each factor for the segment. Currency alone reduced total-order growth by approximately one percentage point.

Timing also matters. Management said production-line expansions at individual customers can dominate demand in a quarter. For Keysight Technologies, Inc. (NYSE:KEYS), large programs can therefore create difficult comparisons if customers pause spending or adjust deployment schedules after the current buildout.

INSIDER MONKEY'S HEDGE FUND DATA

The available filings reflect positions held before Keysight Technologies, Inc. (NYSE:KEYS) released its third-quarter results and raised its outlook. Insider Monkey's second-quarter database showed 97 hedge funds holding Keysight Technologies, Inc. (NYSE:KEYS) at the end of June 2026, up from 86 funds three months earlier.

CONCLUSION

Keysight Technologies, Inc. (NYSE:KEYS) is showing the characteristics of a durable AI testing growth engine: orders above $2 billion for two consecutive quarters, strong core communications growth, broader industrial gains and expanding margins.

The remaining test is whether demand stays strong as current data-center programs mature and whether growth broadens across enough customers and end markets to reduce exposure to a single capital-spending cycle.

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Disclosure: None. This article is originally published at Insider Monkey.