Keysight Technologies Inc (KEYS) Q4 Earnings Analysis: Strong Beat Drives Momentum into FY2026

TLDR

Keysight Technologies delivered an exceptional Q4 2025 performance, crushing both revenue and EPS estimates with actual results of $1.42B (vs. $1.38B estimated) and $1.91 (vs. $1.83 estimated). The market responded enthusiastically with a 5.8% price surge, reflecting investor confidence in the company's return to full-year growth, accelerating order momentum (orders up 14% YoY to $1.53B), and robust Q1 FY2026 guidance that significantly exceeds analyst expectations.

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Financial Performance

Revenue

• Q4 Revenue: $1.42 billion vs. $1.38 billion estimated (Beat)
• Year-over-Year Growth: 10.2% ($1.42B vs. $1.29B in Q4 2024)
• Full-Year FY2025: $5.37 billion vs. $4.98 billion prior year (8% growth)
• Key Revenue Drivers:
  • Communications Solutions Group (CSG): $990M, up 11% YoY, driven by AI data center infrastructure investments, non-terrestrial network applications, and defense modernization
  • Electronic Industrial Solutions Group (EISG): $429M, up 9% YoY, reflecting growth in general electronics and leading-edge semiconductor solutions
  • Strong order growth of 14% YoY to $1.53B signals continued momentum
  • All three end markets showed growth: Aerospace/Defense/Government (+9%), Commercial Communications (+12%), and Electronic Industrial (+9%)

Profitability Metrics

• Adjusted EPS: $1.91 vs. $1.83 estimated (Beat)
• Net Income: GAAP $229 million (non-GAAP $331 million)
• Operating Margin: CSG at 27%, EISG at 25%
• Key Profitability Factors:
  • Strong operational execution with gross margins of 66% (CSG) and 60% (EISG)
  • Full-year non-GAAP EPS of $7.16 exceeded prior year's $6.27 by 14%
  • Improved profitability despite continued investments in R&D ($258M in Q4, up from $233M)
  • Operating income from continuing operations reached $217M

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Operational Highlights

Keysight demonstrated exceptional operational performance across multiple dimensions. The company successfully returned to full-year growth after navigating challenging market conditions, with order momentum accelerating throughout the fiscal year. The 14% YoY order growth to $1.53B represents a particularly strong indicator of future revenue potential.

The company's leadership position across key technology markets remains evident. In communications, ongoing investments in AI data center infrastructure and non-terrestrial networks drove double-digit growth. The defense modernization cycle continues to provide tailwinds, with Aerospace, Defense and Government revenue reaching $330M in Q4, up 9% YoY.

Cash generation remained robust with operating cash flow of $225M in Q4 and $1.41B for the full year, representing a 34% increase over the prior year. Free cash flow of $1.28B for FY2025 (up from $905M in FY2024) demonstrates the company's ability to convert earnings into cash while investing in growth.

The company's balance sheet strengthened with cash and equivalents of $1.87 billion, providing significant financial flexibility. Management's confidence is reflected in the announcement of a new $1.5 billion share repurchase program, replacing the previous authorization.

Key takeaway: Keysight's cash generation and capital allocation signal a disciplined approach to growth and shareholder value, supporting both ongoing investments and capital returns amidst a favorable demand environment.

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Forward Outlook

Near-Term Guidance (Q1 FY2026)

• Revenue Guidance: $1.53B - $1.55B vs. $1.42B estimated (Significantly Exceeds)
  • Midpoint of $1.54B represents 8.5% sequential growth and suggests continued momentum
• EPS Guidance: $1.95 - $2.01 vs. $1.84 estimated (Significantly Exceeds)
  • Midpoint of $1.98 represents 7.5% above consensus
• Management Commentary: CEO Satish Dhanasekaran emphasized “order momentum accelerating through the year” and highlighted the company's “leadership across the markets we serve and sustained demand for Keysight's highly differentiated solutions”

Full-Year Fiscal 2026 Outlook

• Updated Revenue Target: Guidance not provided for full year, but Q1 strength suggests trajectory above $5.33B estimate
• Updated EPS Target: Not explicitly provided, but Q1 guidance implies potential to exceed $7.07 estimate
• Strategic Initiatives:
  • Continued investment in AI data center infrastructure solutions
  • Expansion in non-terrestrial network applications
  • Leveraging defense modernization cycle
  • Focus on leading-edge semiconductor solutions
  • New $1.5B share repurchase program demonstrates capital allocation discipline

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Investment Implications

For Long-Term Holders: Keysight's Q4 results validate the company's strategic positioning across high-growth technology markets. The return to full-year growth, accelerating order momentum, and strong Q1 guidance suggest the company has successfully navigated the cyclical downturn and is entering a new growth phase. The 14% order growth provides visibility into sustained revenue expansion, while the robust free cash flow generation ($1.28B in FY2025) and new $1.5B buyback program demonstrate management's commitment to shareholder returns. Long-term holders should maintain positions given the favorable setup across AI infrastructure, defense, and semiconductor markets.

For Growth Investors: The combination of double-digit order growth, expanding margins, and guidance that significantly exceeds expectations makes KEYS an attractive growth opportunity. The company's exposure to secular trends in AI data centers, 5G/6G communications, and defense modernization provides multiple growth vectors. The Q1 revenue guidance midpoint of $1.54B implies potential for high-single-digit to low-double-digit growth rates, while EPS growth could exceed revenue growth through operational leverage.

For Value-Oriented Investors: Trading at approximately 24x forward earnings (based on FY2026 estimates), KEYS appears reasonably valued given the growth trajectory and market leadership position. The strong cash generation (26% free cash flow margin in FY2025) and new buyback authorization provide downside protection while the company executes on growth opportunities. The 5.8% positive market reaction suggests the stock may have further upside as investors reassess growth prospects.

Risk Considerations: While results were strong, investors should monitor potential headwinds including global economic conditions, geopolitical tensions, export control regulations, and customer purchasing patterns. The company's exposure to semiconductor and electronics markets creates some cyclical sensitivity, though diversification across aerospace/defense provides balance.

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Summary

Keysight Technologies delivered an outstanding Q4 2025 performance that exceeded expectations across all key metrics. Revenue of $1.42B beat estimates by $40M (2.9%), while adjusted EPS of $1.91 surpassed the $1.83 consensus by 4.4%. More importantly, the company demonstrated accelerating momentum with 14% order growth and provided Q1 FY2026 guidance significantly above analyst expectations, with revenue guidance of $1.53-$1.55B versus the $1.42B estimate and EPS guidance of $1.95-$2.01 versus the $1.84 estimate.

The market's 5.8% positive response appropriately reflects the strength of these results and the improved outlook. Both reporting segments showed healthy growth (CSG +11%, EISG +9%), and all three end markets expanded year-over-year. The company's return to full-year growth, combined with strong cash generation ($1.41B operating cash flow, $1.28B free cash flow) and a new $1.5B share repurchase program, positions Keysight favorably for continued success.

With leadership positions across AI infrastructure, communications, defense, and semiconductors, Keysight appears well-positioned to capitalize on multiple secular growth trends. The significant beat-and-raise quarter, coupled with accelerating order momentum, suggests the company has emerged from its cyclical trough and is entering a new growth phase. Investors should view this as a positive inflection point for the company's financial performance.

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