Keysight Technologies, Inc. (KEYS) Q2 FY2026: Revenue and EPS Beat, Strong Guidance, and AI-Driven Growth

Keysight Technologies, Inc. (KEYS) reported revenue of $1.717 billion, surpassing the street estimate of $1.7057 billion, representing a surprise of +0.7%. The company's earnings per share (EPS) of $2.87 significantly beat the street estimate of $2.32, with a surprise of +23.7%. These results are a testament to the company's ability to capitalize on market opportunities and execute its strategic initiatives effectively.

Revenue grew by 31% year-over-year (YoY), driven by strong performance across all segments. The Communications Solutions Group (CSG) generated $1.231 billion in revenue, up 35% on a reported basis and 27% on a core basis. The Electronic Industrial Solutions Group (EISG) contributed $486 million in revenue, an increase of 24%. Gross margin improved to 72.3%, with CSG achieving a gross margin of 74.1% and operating margin of 33.4%.

The company generated a record $472 million in free cash flow, reflecting strong operational performance and efficient capital management. Neil Dougherty noted, "We ended the quarter with $2.412 billion in cash and cash equivalents, generating record cash flow from operations of $501 million and record free cash flow of $472 million." Additionally, Keysight repurchased approximately 780,000 shares of its stock at an average price of $283 per share, totaling $220 million in share repurchases.

Keysight provided strong guidance for Q3 FY2026, expecting revenue in the range of $1.730 billion to $1.750 billion, representing 29% year-over-year growth at the midpoint. The company also expects Q3 earnings per share to be in the range of $2.43 to $2.49, representing 43% year-over-year growth at the midpoint.

The integration of recent acquisitions is on track, with Keysight expecting $375 million in FY2026 revenue from the acquisitions and greater than $100 million in cost synergies and other operational efficiencies.

Keysight has raised its CapEx spend expectation for the year by about 25%, from $160 million to $200 million, with the majority of the incremental investment going to aid in the ramp of recent acquisitions.

Keysight's strong performance is underpinned by its leadership in the test and measurement industry, particularly in the context of AI-driven demand. The company's AI business, which includes test and measurement solutions for AI applications, finished the first half in the $500 million to $600 million range, almost in line with what it did for the whole of last year.

Comparing Keysight's performance to its peers in the Test_Assembly subsector, the company stands out. For instance, ATEYY reported a revenue of ¥334.10 billion with a gross margin of 67.4% and a revenue YoY growth of 43.8%. DSCSY reported a revenue of ¥135.51 billion with a gross margin of 70.8% and a revenue YoY growth of 12.3%. Keysight's revenue growth of 31% and gross margin of 72.3% are competitive and indicate strong market positioning.

Keysight's strong performance has positive implications for its key customers, including NVIDIA (NVDA), Qualcomm (QCOM), and Broadcom (AVGO). The company's test and measurement solutions are crucial for these customers, particularly in the context of AI and advanced semiconductor technologies. The strong order growth and revenue performance suggest that these customers are likely to continue their investments in test and measurement solutions, driving further demand for Keysight's products.

Quarter 2 orders grew 56% year-over-year, surpassing $2 billion, indicating strong customer demand. This growth is driven by multiple overlapping speed transitions, including continued 800-gig deployments, accelerating adoption of 1.6-terabit architectures, and increased R&D activity around 3.2-terabit technologies.

The tone of the earnings call was positive, with a sentiment score of 0.48, a guidance tone of 0.66, and a tone confidence of 0.31. The prepared sentiment score was 0.80, indicating a highly positive prepared script, while the QA sentiment score was 0.25, reflecting a more neutral tone during the Q&A session. Neil Dougherty's comments on the strong results and future outlook contributed to the positive tone. Neil Dougherty stated, "Revenue grew 31%, earnings per share grew 69%, and we generated a record $472 million in free cash flow."

Full call-over-call delivery metrics are in the tone history.

Compared to the previous quarter (Q1 FY2026), the sentiment score increased by +0.05, the guidance tone increased by +0.05, and the tone confidence increased by +0.04. The prepared sentiment score saw a significant increase of +0.77, while the QA sentiment score decreased by -0.21. The uncertainty score decreased by -9.2, and the QA evasiveness score decreased by -48.7, indicating a more confident and direct approach during the Q&A session.

Keysight Technologies, Inc. (KEYS) delivered a strong Q2 FY2026, with revenue and EPS beating street estimates. The company's guidance for Q3 FY2026 is strong, and the integration of recent acquisitions is on track, contributing significantly to the company's growth. The strong performance is underpinned by Keysight's leadership in the test and measurement industry, particularly in the context of AI-driven demand. The positive tone of the earnings call and the strong financial performance suggest that Keysight is well-positioned to continue its growth trajectory in the coming quarters.