On August 18, Keysight Technologies (NYSE:KEYS) delivered a fiscal third quarter that beat the high end of its own guidance across the board. Revenue climbed 36% year over year to $1.85 billion, non-GAAP earnings per share jumped 79% to $3.07, and orders topped $2 billion for the second straight quarter. Management raised its outlook for both the fourth quarter and the full fiscal year, pointing to demand tied to artificial intelligence infrastructure, defense modernization, and next-generation communications standards. The results position Keysight as one of the more direct ways to invest in the testing and validation side of the AI buildout, a corner of the market most investors rarely think about.
Orders Piling Up Everywhere
Orders reached $2.091 billion in the quarter, up 56% on a reported basis, the second straight quarter above the $2 billion mark. Wireline orders more than doubled year over year as customers scaled out AI data center infrastructure, and Commercial Communications crossed $1 billion in quarterly revenue for the first time, up 56%, while revenue from wireline products outpaced wireless within that segment for the first time. The Electronic Industrial Solutions Group posted a record $501 million in revenue, up 21%, with double-digit order growth across general electronics, semiconductors, and automotive and energy. Aerospace, defense and government revenue grew 14% to $339 million as spending shifted toward lower-cost autonomous platforms, including UAVs and low earth orbit satellite constellations built by venture-funded defense technology firms.
Profitability expanded right alongside the growth: operating margin hit 33.2%, up 820 basis points and above the company’s long-term target range of 31% to 32%, while free cash flow rose to $403 million from $291 million a year earlier. The company also added nearly 3,000 new customers so far this fiscal year, a group that has already contributed more than $100 million in new business, and said July was its busiest month yet for incoming sales opportunities, pushing the trailing 12-month pipeline to a record. Further out, the 3GPP standards body confirmed in June that the first 6G standard is targeted for March 2029, a milestone management said is already moving customers from exploratory research into funded development work.
Supply Chains Set The Pace
CFO Neil Dougherty tempered the enthusiasm, warning that supply availability remains “a governor of our ability to convert demand into revenue” over the next several quarters, meaning orders are outrunning what the company can actually ship and book as revenue right now. He also noted that one-time tariff impacts in fiscal 2026 inflated this year’s profitability in ways that are not expected to repeat in fiscal 2027. That combination, a backlog constrained by supply and a margin base partly lifted by tariffs, complicates how much of this quarter’s strength carries forward unchanged. The integration of recent acquisitions is also still working through the system.
Keysight expects to realize 80% to 90% of its targeted $100 million in cost synergies on a run-rate basis by fiscal year-end, a quarter ahead of schedule, which is welcome but also a reminder that part of the current margin expansion is coming from cost cutting rather than pure operating leverage. Hyperscaler customers account for roughly 10% of Keysight’s business directly, and while management described meaningful downstream influence across the broader ecosystem, that concentration ties results more tightly to a small group of AI infrastructure spenders than the diversified growth story suggests on the surface.
Wall Street’s Read On It
The number of hedge funds holding Keysight rose from 66 to 71 quarter over quarter, pointing to institutions adding to positions rather than trimming them. Short interest sits at just 1.98% of the float, a level that shows little organized skepticism toward the stock. Keysight trades at a forward price-to-earnings ratio of 20.33 as of August 26, a modest multiple given the growth rate management just reported and guided toward for the fourth quarter.
What Happens Next Matters
Keysight’s fiscal third quarter left little doubt that demand tied to AI infrastructure, defense modernization, and next-generation communications is broad-based, with orders, revenue, and margins all landing ahead of guidance. Tellingly, the caution came from the company’s own executives, who flagged supply constraints and a tariff-driven profitability boost unlikely to repeat next year.
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