Keysight Earnings Could Reveal the Next Big Winner in AI Beyond Nvidia — Or Expose Cracks in the Trade

Keysight Technologies (KEYS) reports fiscal second-quarter earnings after the close Tuesday, and while the event may not attract the same level of attention as NVIDIA (NVDA) earnings later this week, the report could provide investors with an important read-through into some of the less obvious corners of the artificial intelligence infrastructure trade. AI-related equities have come under pressure recently as investors reassess elevated valuations, competitive risks, and whether the massive spending cycle surrounding AI infrastructure can continue at its current pace. Nvidia remains the centerpiece of the AI trade, but companies like Keysight are increasingly important because they help investors understand what is happening deeper inside the AI ecosystem itself — particularly around networking, connectivity, testing, semiconductor complexity, and hyperscaler deployment activity.

For investors less familiar with the company, Keysight is one of the world’s leading providers of electronic testing, measurement, simulation, and validation solutions. In simple terms, Keysight builds the tools used to test semiconductors, networking equipment, AI servers, wireless systems, satellites, automotive electronics, and data center infrastructure. The company operates behind the scenes of many of the world’s largest technology transitions. Whenever chip complexity increases, networking speeds accelerate, or next-generation wireless and compute infrastructure is deployed, companies often need more sophisticated testing and validation systems — and that is where Keysight fits into the AI story.

The AI boom has become especially important for Keysight because AI infrastructure deployment is rapidly increasing demand for high-speed networking, wireline connectivity, optical systems, and data center interconnects. Hyperscalers and AI infrastructure providers are racing to build out increasingly complex “scale-up” and “scale-out” AI architectures, requiring advanced testing tools to validate performance, power efficiency, latency, and reliability. Management noted during its prior earnings call that AI infrastructure has moved beyond the experimental phase and into scaled deployment, with customers now manufacturing and deploying systems “with confidence” rather than simply designing prototypes.

Wall Street expects another strong quarter from Keysight. Consensus estimates currently call for earnings per share around $2.32-$2.33 on revenue near $1.72 billion, implying year-over-year growth of roughly 37% in earnings and more than 30% revenue growth. Analysts have steadily raised estimates heading into the report, reflecting improving confidence around AI-driven demand and networking recovery trends.

Several analysts believe expectations may still be too conservative.

Susquehanna recently raised its price target to $415 from $300 ahead of earnings and said it expects a “beat and raise” quarter. The firm anticipates EPS of at least $2.35 for both the April and July quarters, above current consensus expectations. Susquehanna also argued that Keysight could potentially generate annualized EPS above $12 exiting fiscal 2027 and approximately $15 exiting fiscal 2028, driven by secular AI networking demand and expanding operating margins.

Goldman Sachs also raised its target on the stock following a strong prior quarter, pointing to broad-based order strength and improving visibility into demand. The company’s prior quarter showed a book-to-bill ratio of 1.03x, while Q2 guidance of roughly $1.70 billion in revenue and approximately $2.30 in EPS came in materially ahead of Wall Street expectations. Goldman specifically highlighted attractive secular growth drivers in networking, data center infrastructure, aerospace and defense, and eventually 6G wireless infrastructure.

Investors will likely focus heavily on several key areas during the earnings release and conference call.

The first major focus will be AI-related demand trends, particularly around wireline networking and hyperscaler infrastructure spending. During the prior quarter, Keysight noted that wireline orders actually surpassed wireless for the first time in company history, driven by explosive growth in AI infrastructure deployments. Management said AI-related revenue already represents roughly 10% of total company revenue on a run-rate basis, with growth running significantly above company averages.

That matters because Keysight is exposed to some of the most important underlying trends inside AI infrastructure. The shift toward 800G, 1.6T, and eventually 3.2T networking architectures requires increasingly advanced testing and validation solutions. Susquehanna specifically noted that the addressable market for next-generation wireline networking is now materially exceeding the size of the prior 5G wireless opportunity. Unlike some peers, Keysight also maintains exposure across the full wireline stack, which analysts believe gives the company a meaningful competitive advantage.

Another key area to watch will be aerospace, defense, and government demand. During its prior quarter, Keysight reported record orders across the segment as global defense modernization accelerated. Rising geopolitical tensions and increasing investment in radar systems, space technologies, electronic warfare, and secure communications continue driving demand for Keysight’s high-precision testing systems. Management specifically highlighted “heightened global focus on deterrence and defense modernization priorities” as a major tailwind.

Margins and cash flow will also be important themes.

Last quarter, Keysight delivered gross margins of 66.7%, up 90 basis points year over year, while operating margin reached 27.4%. The company also generated approximately $441 million in operating cash flow and $407 million in free cash flow. Investors will likely watch whether Keysight can maintain those elevated margins as AI demand scales further and whether operating leverage continues improving alongside revenue growth.

Capital allocation will also remain in focus. Keysight repurchased approximately $87 million worth of stock during the prior quarter and continues to benefit from strong free cash flow generation. However, investors are also paying close attention to the company’s acquisition integration strategy following more than $2 billion in investments made last year. Analysts generally view those investments positively because they expand Keysight’s AI and networking capabilities, but they also acknowledge that changing AI sentiment could make investors more sensitive to balance-sheet risk and capital deployment decisions.

One interesting dynamic heading into the report is valuation. Shares of Keysight have rallied more than 80% year-to-date and nearly 200% from their March 2025 lows, dramatically outperforming broader equity benchmarks. That rally has pushed valuation multiples significantly higher, with the stock trading near 60 times forward earnings estimates and roughly 9 times forward sales. Bulls argue those multiples are justified given the company’s growth profile, AI leverage, expanding margins, and free cash flow generation. Bears worry the stock has become vulnerable if AI spending expectations soften even modestly.

Ultimately, Keysight’s earnings may serve as an important temperature check for the broader AI infrastructure trade. Nvidia earnings later this week will likely determine the overall direction of AI-related equities, but Keysight could provide critical insight into whether demand is broadening deeper into networking, testing, connectivity, and deployment infrastructure. Strong results and bullish commentary would likely reinforce the idea that the AI spending cycle remains healthy beyond just GPU demand. However, any signs of slowing orders, weaker guidance, or customer hesitation could amplify growing concerns that parts of the AI trade may be running ahead of fundamentals after one of the strongest rallies in market history.