Key Takeaways
- Accelerating demand for AI, high-speed data, and next-gen wireless standards is driving sustained revenue growth, margin expansion, and stronger pricing power.
- Expansion into software-centric and recurring revenue streams, alongside strategic acquisitions, is increasing market share, resilience, and earnings stability.
- Keysight faces margin and revenue risks from tariffs, cyclical end-market softness, shifting demand toward software, and global supply chain disruptions under geopolitical uncertainty.
Catalysts
About Keysight Technologies- Offers electronic design and test solutions worldwide.
- Accelerating AI-driven infrastructure buildouts and ongoing expansion of high-speed data centers are driving robust, double-digit wireline order growth and continued adoption of advanced optical and electrical test solutions; this is expected to support sustained revenue growth and enhanced pricing power as Keysight remains integral to enabling these complex deployments.
- Rising R&D activity and investment related to 5G-Advanced and early 6G wireless, as well as non-terrestrial networks (satellites, space), are fueling increased demand for Keysight's test, simulation, and digital twin products, underpinning a long-term pipeline that should drive both revenue and margin improvement as these new wireless standards are commercialized globally.
- Ongoing transition toward a greater mix of software-centric and recurring revenue streams-including simulation, emulation, and virtual prototyping solutions-has resulted in software and services now comprising 36% of revenue and recurring revenues at 28%, providing margin expansion and improved earnings quality due to higher-margin, lower-volatility business.
- Strategic M&A-such as the Spirent, Optical Solutions Group, and PowerArtist acquisitions-combined with sustained R&D investment are expanding Keysight's offering into high-growth areas like industrial simulation and next-gen design, broadening the addressable market, increasing market share potential, and driving incremental revenue.
- Deepening engagements with leading OEMs and research institutions across communications, data centers, semiconductors, and aerospace/defense-as evidenced by a record backlog and double-digit order growth in prime contractor businesses-provide revenue visibility and operating resilience that should translate into a more stable earnings profile, even amid macro or geopolitical uncertainties.
Keysight Technologies Future Earnings and Revenue Growth
Assumptions
How have these above catalysts been quantified?- Analysts are assuming Keysight Technologies's revenue will grow by 6.6% annually over the next 3 years.
- Analysts assume that profit margins will increase from 14.5% today to 20.3% in 3 years time.
- Analysts expect earnings to reach $1.3 billion (and earnings per share of $7.69) by about August 2028, up from $742.0 million today.
- In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 31.8x on those 2028 earnings, down from 39.5x today. This future PE is greater than the current PE for the US Electronic industry at 24.0x.
- Analysts expect the number of shares outstanding to decline by 0.83% per year for the next 3 years.
- To value all of this in today's terms, we will use a discount rate of 8.35%, as per the Simply Wall St company report.
Keysight Technologies Future Earnings Per Share Growth
Risks
What could happen that would invalidate this narrative?- Keysight faces significant incremental tariff expenses ($75-100 million annualized gross impact), and although management expects full mitigation by fiscal Q1 2026, if tariffs escalate or mitigation strategies underperform, gross margins, operating margins, and net profit could be pressured in the coming years.
- The Electronic Industrial Solutions Group (EISG) is experiencing contraction in automotive and energy, continued weakness in China manufacturing, and only mixed demand overall; persistent softness or slow recovery in these cyclical end-markets could result in uneven revenue trends and lower earnings growth.
- The company's strong reported performance is currently buoyed by robust R&D-driven demand in wireline and AI data center infrastructure; however, prolonged macroeconomic uncertainty, a continuing resolution in U.S. government funding, or a slowdown in AI/data center capital expenditure could dampen top-line growth and order flow, affecting future revenues.
- While Keysight is expanding its software and recurring revenue base, the relative contribution may fall as core hardware markets recover cyclically; if long-term industry trends shift more rapidly toward software-centric, virtualized/cloud testing, Keysight's traditional hardware products could face price and margin compression, impacting profitability.
- The growing complexity and regional realignment of global supply chains-intensified by geopolitical tensions and trade policy uncertainty-could present execution risk both for cost mitigation (e.g., tariff strategies) and for meeting shifting customer demand, risking higher operating costs and potential shipment delays, thereby limiting earnings improvements.
Valuation
How have all the factors above been brought together to estimate a fair value?- The analysts have a consensus price target of $188.182 for Keysight Technologies based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $200.0, and the most bearish reporting a price target of just $157.0.
- In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $6.2 billion, earnings will come to $1.3 billion, and it would be trading on a PE ratio of 31.8x, assuming you use a discount rate of 8.3%.
- Given the current share price of $170.22, the analyst price target of $188.18 is 9.5% higher.
- We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.
How well do narratives help inform your perspective?
Disclaimer
AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.