Keysight Technologies (KEYS) Q1 FY26 earnings call: guidance and Q&A

How much are the AI-driven wireline growth drivers contributing to the business, and is the customer base expanding?

Keysight's AI exposure was ~10% of company revenue in Q4 FY25, with robust order growth significantly above the company average in Q1 FY26. Demand is broadening across the customer base, including silicon companies, manufacturing ecosystems, hyperscalers, and emerging neoclouds, with increasing international business.

“roughly, we sized our AI exposure last year in Q4 to be just about 10% of the company revenue. And on top of that, this quarter, on that run rate, I should say, we had robust order growth and significantly above company average.”

asked by Aaron Rakers · answered by Satish Dhanasekaran

Given strong incremental operating leverage, how does Keysight view its operating margin trajectory relative to its long-term targets, especially with acquisitions?

Keysight's business model targets 40% core operating leverage on mid-single-digit growth or better, which was achieved in Q1 FY26 (41%). Acquisitions are currently dilutive to operating margin but are expected to become accretive once the $100 million in cost synergies are realized, primarily in late FY26.

“We've designed our business model about delivering 40% core leverage on growth that's in the mid-single digits or better. In fact, this quarter, we delivered 41% leverage, obviously, on significantly higher growth -- core growth.”

asked by Aaron Rakers · answered by Neil Dougherty

Is the acceleration in Aerospace & Defense revenue a new trajectory or a one-time event, given increased budgets?

The Q1 acceleration reflects delayed spend from the previous year and increased European defense spending. Management expects continued strength from rising defense budgets, U.S. primes investing in R&D and capacity, and Keysight's broader portfolio including Spirent's PNT business.

“But as we look ahead into the pipeline and even further out, what we're seeing is increasing defense spending in Europe, and we also saw a very strong European defense spend this quarter and we expect that to continue.”

asked by Meta Marshall · answered by Satish Dhanasekaran

Are new AI use cases like CPO, 1.6T, and 3.2T additive to existing demand, and how meaningful are they?

The company sees concurrent, parallel technology waves at an unprecedented rate, with 1.6T and 3.2T R&D accelerating alongside 800G ramps. This plays to Keysight's strength as a solutions-oriented company with a full-stack portfolio, enabling them to address new emerging use cases and deepen engagements with a broadening customer base, including neoclouds and startups.

“what we're seeing is concurrent parallel technology wave sort of coming at pretty much an unprecedented rate, what was a well-defined 2-, 3-year long technology refresh cycles, I mean now are happening concurrently.”

asked by Timothy Long · answered by Satish Dhanasekaran

The updated FY26 guidance implies moderation in H2. What are the assumptions, and what is the visibility like?

Keysight has strong visibility one quarter out, decent visibility two quarters out, and less clarity beyond that. The base case for FY26 is organic growth substantially above the long-term model, even in H2. While there's opportunity for upside if Q1/Q2 momentum sustains, the guidance reflects a prudent approach given typical visibility patterns.

“So I think looking to put guardrails on it, we believe that, again, on an all-in basis, we can grow the business 20%, a little over 20% this year. Is there opportunity for upside if we can sustain the same level of momentum that we see in Q1 and Q2? Absolutely.”

asked by Mark Delaney · answered by Neil Dougherty

How does Keysight view the potential for AI to disrupt its software capabilities, both on-box and stand-alone?

Keysight is a software-centric solutions company focused on solving customer problems with deep physics and differentiated tech stacks. The company is embedding more AI into its tools to enhance usability and simulate more complex scenarios, rather than seeing AI as a disruption to its core value proposition.

“I would not go as far as saying we're not looking at AI. We are, in fact, embedding more AI into those tools to make them easier for our customers to use and for them to simulate more complex things.”

asked by Samik Chatterjee · answered by Satish Dhanasekaran

Where is Keysight in the AI customer expansion cycle, and is it still early innings compared to prior cycles like 5G?

AI is expected to have a material impact on innovation across all end markets. While Keysight has seen customer expansion, it is still largely servicing U.S.-based hyperscaler demand. Future opportunities include sovereign investments globally and new use cases where AI intersects with other businesses, suggesting it is still relatively early in the broader AI adoption cycle.

“Even with the expansion that we've seen in customers to date, we still are largely servicing, call it, the U.S.-based -- U.S. hyperscaler-based demand. And we're starting to hear about more sovereign investments around the globe that are yet to come and use cases where AI starts to intersect with some of our other businesses as well.”

asked by Robert Jamieson · answered by Satish Dhanasekaran