Keysight Q1 FY26 Earnings Beat: AI & Defense Demand Drive Strong Q2 Outlook

Keysight Surges on Positive Q2 Guidance and Robust Q1 FY26 Earnings.

Foziljon Kamolitdinov

February 25, 2026

Executive Snapshot

On February 23, 2026, shares finished at $245.00, up +4.53% over five days and +44.39% over three months. The volume was about 2.5 times the 20-day average.

Revenue for the first quarter of FY26 was $1.60 billion, driven by robust demand across communications and defense end markets.

Management guided Q2 non-GAAP EPS to $2.27–$2.33, while non-GAAP EPS was $2.17.

$1.645 billion in orders were placed, a crucial "demand signal" that indicates what customers are ordering for future delivery.

In the first quarter of FY26, cash generation remained stable at $441M operating cash flow and $407M free cash flow.

What’s moving the stock now

The primary motivator is earnings strength. The results exceeded expectations, according to headlines around the release, which contributed to the stock's recent ascent to its 52-week high of $248.

The "AI + defense demand" perspective is attracting investor attention. Strong demand for AI and defense was highlighted in the earnings presentation. In reality, this usually manifests as increased investment in test-and-measurement instruments to verify faster processors, data-center connections, and sophisticated systems.

The flow of product news supports the narrative. Several product/solution announcements (such as those pertaining to AI data-center validation and high-speed digital validation) are included in the news list you submitted. These releases are significant because they highlight Keysight's role as a "picks-and-shovels" supplier for rapidly evolving technologies.

The uncertainty around tariffs and policies remains a concern. The business stated that the effects of the Supreme Court's decision on IEEPA tariffs on February 20, and the subsequent steps, are not included in its Q2 forecast. This implies that future assumptions may still be impacted by policy outcomes.

Expectations Gap

Actual vs. suggested forecast for Q1 FY26:

Revenue: $1.60B vs ~$1.54B (beat by $60M) → ~+3.9% surprise (60M ÷ 1.54B).
Non-GAAP EPS: $2.17 vs ~$2.00 (beat by $0.17) → ~+8.5% surprise (0.17 ÷ 2.00).

The company reported revenue of $1.60 billion vs. expected ~$1.54 billion (beat by $60M, ~+3.9% surprise), and Non-GAAP EPS of $2.17 vs. expected ~$2.00 (beat by $0.17, ~+8.5% surprise).

Guidance check (Q2 FY26):

Revenue guide: $1.690B–$1.710B
Non-GAAP EPS guide: $2.27–$2.33

The company guided for Q2 FY2026 revenue between $1.690 billion and $1.710 billion, and expects Non-GAAP earnings per share (EPS) in the range of $2.27 to $2.33.

Operating read-through

Orders support the healthy appearance of demand.

In Q1 of FY26, Keysight reported $1.645 billion in orders. Orders are significant to investors because they often provide a forward-looking view of consumer spending, particularly in markets where hardware is prevalent, and purchase timing is flexible.

Communications was the main driver of the wide-ranging growth.

With revenue of $758M (+33% YoY), commercial communications was the fastest-growing end market in the mix.
Aerospace, Defense & Government came in at $366M (+18% YoY), providing a "durability" component, as this demand may be program-driven.
Electronic Industrial had double-digit growth outside of the communications cycle, with $476M (+15% YoY).

Segments show balanced execution.

CSG revenue: $1,124M (+27% YoY)
EISG revenue: $476M (+15% YoY)

Operating margins for both categories were 27%, indicating that profitability remained stable as revenue increased.

Cash generation continued to be helpful.

In the first quarter, Keysight generated $407 million in free cash flow and $441 million in operating cash flow. This improves flexibility for investment and shareholder returns, since it demonstrates that the quarter was more than just "paper earnings"; it translated into cash.

Valuation + positioning

Where the stock sits now.

At $245.00, KEYS closed well above the 52-week low of $121.43 (Apr 7, 2025) and just below the 52-week high of $248.00 (Feb 20, 2026). The most recent day's trading volume (2,817,871 shares) was significantly higher than the 20-day average (1,134,830), which is frequently an indication that more investors are responding to new information. The multi-month rise has been robust (+44.39% over three months).

Multiples

EV/Sales: 7.9x–8.3x
EV/EBITDA: 29.3x–35.2x
P/E (TTM): 48.5x–49.6x
P/E (Forward): 21.9x–30.0x
P/FCF: 32.6x–33.6x

The company is valued at almost 8 times its annual revenue, according to its EV/Sales ratio (7.9x–8.3x), suggesting investors anticipate rapid future growth. With an EV/EBITDA ratio of 29.3x–35.2x, the company is valued at a premium, as it trades at a high multiple of its operating cash earnings. P/E (TTM 48.5x–49). Price-to-earnings ratios are compared using 6x (Forward 21.9x–30.0x), where the decline from TTM to forward suggests analysts anticipate higher earnings. As is common among companies with high growth aspirations, the P/FCF ratio (32.6x–33.6x) suggests investors are paying more than 30 times the company's free cash flow.

Balance sheet context.

Market cap: ~$42.1B | Enterprise value: ~$42.7B
Cash: $2.18B | Debt: $2.53B → Net debt: $356M

According to the data given, this balance sheet is not highly leveraged, which may be significant as markets grow more susceptible to financing risk.

Catalysts

Q2 delivery versus guidance: performance between $2.27–$2.33 non-GAAP EPS and $1.690B–$1.710B sales.
Order follow-through: if the robust order intake from the first quarter persists, providing insight into the upcoming quarters.
Customer expenditure on high-speed digital, data-center, and sophisticated system validation is a strength in the AI-related validation market.
Updates on policies and tariffs: any more precise information on effects not included in the Q2 projection.

Risks

Policy risk (tariffs): results may alter future projections because the corporation specifically excluded possible tariff effects from its advice.
Timing risk in customer spending: even when the longer-term demand is unchanged, orders and major projects may change between quarters, causing volatility.
End-market concentration: Communications is driving the fastest growth; if this trend slows, growth may level out.
Sensitivity to valuation: using multiples such as P/FCF ~32.6x–33 and EV/Sales ~7.9x–8.3x.6x, if growth expectations are revised, the stock might respond more forcefully.

Shariah compliance

The Keysight screening result is Pass. 96.86% of business activities are halal, 0.00% are doubtful, and 3.14% are not. With interest-bearing debt at 9.23% and interest-bearing securities/assets at 8.37%, financial screens also stay within acceptable bounds. Interest income (1.79%) and gains from derivatives (1.14% + 0.21%) are the primary drivers of the Not Halal part.

Bottom line

With $1.60 billion in revenue, a robust order signal ($1.645 billion), and good cash production ($407 million in free cash flow), the most recent quarter indicates strong demand and disciplined execution. Results indicate that the near-term setup will depend on Keysight's ability to execute within its targeted ranges while managing policy uncertainties and maintaining momentum in communications and defense-related demand. The positive Q2 projection establishes the next checkpoint.

Sources

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