Keysight Technologies (KEYS) is having a moment. The test and measurement company reported fiscal third-quarter results that blew past expectations, and investors are rewarding the stock with a premarket pop. Shares were up 2.34% to $348.99 in early trading Wednesday.
The headline numbers are impressive: adjusted EPS of $3.07 crushed the $2.48 analyst consensus, and revenue of $1.85 billion came in well above the $1.74 billion Wall Street was looking for. But the real story is the order book. Orders surged 56% year over year to $2.091 billion, a sign that customers are committing to big-ticket investments in areas like AI infrastructure, advanced semiconductors, and defense modernization.
Earnings Snapshot
Revenue rose 36% to a record $1.846 billion, and EPS jumped 79%. Management says customer investment remains strong across AI infrastructure, advanced semiconductors, defense modernization, and next-generation communications, which gives them confidence in sustained long-term growth.
The operating margin story is particularly noteworthy. Operating margin expanded 820 basis points to 33.2%, blowing past the company's long-term target of 31%-32%. The core business delivered a 34.7% operating margin with a 66% incremental margin, which is a fancy way of saying that each additional dollar of revenue is generating a lot of profit.
Keysight ended the quarter with $2.605 billion in cash and cash equivalents. Operating cash flow was $437 million, and free cash flow came in at $403 million. The company also returned $210 million to shareholders through share repurchases during the quarter, bringing fiscal 2026 year-to-date buybacks to $517 million.
Business Performance
Breaking down the segments, the Communications Solutions Group saw revenue increase 43% to $1.345 billion, or 36% on a core basis. Orders hit a new record for the ninth consecutive quarter, which is a nice streak.
Commercial Communications posted its first $1 billion revenue quarter, with revenue rising 56% to $1.006 billion. Wireline revenue more than doubled year over year and surpassed wireless revenue for the first time, driven by AI infrastructure scaling, speed transitions, silicon photonics, and system-level emulation.
The Electronic Industrial Solutions Group also had a strong quarter, delivering record revenue of $501 million, up 21%. Orders grew at double-digit rates across General Electronics, Semiconductors, and Automotive and Energy.
General Electronics benefited from AI-driven innovation and infrastructure spending, particularly from rising testing needs for high-performance components like multilayer PCBs and capacitors. Semiconductor revenue was supported by capacity expansion for advanced nodes, high-bandwidth memory, and silicon photonics, with commercial silicon photonics production accelerating among leading foundries and integrated device manufacturers.
Automotive and Energy orders also increased at solid double-digit rates, driven by investments in software-defined vehicle architectures, in-vehicle networking, cybersecurity testing, high-power charging, energy storage, and infrastructure validation.
Keysight is involved across the AI infrastructure development cycle, from pre-silicon design and chip and component validation to data-center rack and cluster emulation and high-value manufacturing. The growing demand for high-speed optical infrastructure is also prompting transceiver manufacturers to scale 800-gigabit and 1.6-terabit optical products using Keysight's 224-gigabit digital communication analyzers.
Outlook
Looking ahead, Keysight expects fourth-quarter adjusted EPS of $3.34-$3.40, versus the $2.70 analysts were expecting, and revenue of $1.93 billion-$1.95 billion, versus the $1.81 billion estimate.
For the full fiscal year 2026, the company projects adjusted EPS of $11.46, compared with the $10.24 analyst estimate. It also raised its sales guidance from a previous range of $6.826 billion to $6.934 billion to a new figure of $7.095 billion, versus the $6.884 billion consensus.
On the integration front, Keysight said the integration of its recent acquisition is largely complete, with systems migrations finished one quarter ahead of schedule. The company expects to achieve 80%-90% of the $100 million in cost synergies on a run-rate basis by the end of fiscal 2026.
So, what does this all mean? Keysight is riding the AI wave, and it's doing so profitably. The order surge suggests that customers aren't just talking about AI investments; they're putting money down. And with the company raising guidance, management seems confident the momentum will continue. For investors, the question is whether the stock, which is up nicely premarket, has more room to run. Given the strength of the quarter and the raised outlook, it's hard to argue with the optimism.
