Preliminary brief— based on press release only. Full analysis including management tone and Q&A will be added when the transcript is available.

KEYS · Q2 2026 Earnings

Keysight Technologies

Reported May 19, 2026

30-second summary

Q2 revenue grew 31.4% YoY to $1.717B and non-GAAP EPS of $2.87 obliterated the $2.32 consensus by 23.7% and the prior $2.27–$2.33 guide by $0.54 — the largest single-quarter EPS surprise in the recent sequence. Management raised FY26 revenue growth from "just above 20%" to "high 20s percent range," confirming the Q1 watch-list hypothesis that the original FY26 framing was deliberately conservative. Q3 is guided to $1.73–$1.75B (+29% YoY) and EPS to $2.43–$2.49 (+43% YoY at midpoint), with orders of $2.051B implying a 1.19x book-to-bill — the highest in the recent sequence and the cleanest evidence that AI infrastructure demand is compounding, not pulling forward.

Headline numbers

EPS

Q2 FY2026

$2.87

+23.7% vs est.

Revenue

Q2 FY2026

$1.72B

+31.4% YoY

+0.4% vs est.

Gross margin

Q2 FY2026

68.6%

Free cash flow

Q2 FY2026

$0.47B

Operating margin

Q2 FY2026

23.7%

Key financials

Q2 FY2026

Metric	Q2 FY2026	Q2 FY2025	YoY	Q1 FY2026	QoQ
Revenue	$1.72B	$1.31B	+31.5%	$1.60B	+7.3%
EPS	$2.87	$1.70	+68.8%	$2.17	+32.3%
Gross margin	68.6%	62.4%	+620bps	62.2%	+641bps
Operating margin	23.7%	15.8%	+790bps	15.5%	+820bps
Free cash flow	$0.47B	$0.46B	+3.3%	$0.41B	+16.0%

Guidance

Keysight raised FY2026 revenue growth guidance from 'just above 20%' to 'high 20s percent range' following a strong Q2 beat (non-GAAP EPS +23.7%, revenue +0.4%), with Q3 guided for 29% revenue and 43% EPS YoY growth.

Guidance is issued for both next quarter and the full year. Both may appear below.

Actuals vs prior guidance

Metric	Period	Prior guide	Actual	Δ	Result
Revenue	Q2 FY2026	$1.69B–$1.71B	$1.717B	+$0.007B above midpoint; +0.4% surprise vs. consensus	Beat
Non-GAAP EPS	Q2 FY2026	$2.27–$2.33	$2.87	+$0.54 above high end; +23.7% surprise vs. consensus	Beat

New guidance

Metric	Period	Guide	YoY
Revenue	Q3 FY2026	$1.73B–$1.75B	+28–30% YoY
Non-GAAP EPS	Q3 FY2026	$2.43–$2.49	+43% YoY at midpoint
Expected FY26 capital expenditures	FY2026	$200 million	—

Changes to prior guidance

Metric	Period	Prior guide	New guide	Δ	Result
Revenue growth rate	FY2026	just above 20%	high 20s percent range	+5–9 percentage points vs. prior 'just above 20%' guidance	Raised

Reaffirmed unchanged this quarter: Expected FY26 revenue from acquisitions ($375 million), Expected cost synergies and operational efficiencies (greater than $100 million)

Product revenue

Q2 FY2026

Segment	Q2 FY2026	Q2 FY2025	YoY
Communications Solutions Group (CSG)	$1.231B	$0.913B	+34.8%
Electronic Industrial Solutions Group (EISG)	$0.486B	$0.393B	+23.7%
Aerospace, Defense and Government	$0.373B	$0.301B	+23.9%
Commercial Communications	$0.858B	$0.612B	+40.2%
Electronic Industrial	$0.486B	—	+24.0%

Management tone

Narrative arc: Q3 "recovery ahead of plan" → Q4 "FY26 at or above long-term targets, M&A on top" → Q1 "compounding momentum, concurrent technology waves" → Q2 "AI as the operating regime, multi-year customer runway visible."

Two quarters ago AI was framed as the structural driver behind raising FY26 to "just above 20%." One quarter ago it became the dominant growth engine with the "doubling of customer count" disclosure. This quarter Satish made it the size statement: "In the first half of fiscal 2026, our AI-related business has already surpassed the levels achieved in all of 2025." That is no longer a directional thesis; it is a quantified inflection where half a year of AI revenue exceeds a full prior year. The implication: management is no longer modeling AI as an acceleration on top of base growth — it is the base growth, and base growth is something else.

Visibility extended past the six-month guidance window for the first time in the recent sequence. Satish: "we see this as a multi-year runway that's ahead of us because of all the discussions we're having with customers around their future plans." For a management team that has historically anchored to backlog plus one-quarter visibility, the explicit multi-year language paired with a 1.19x book-to-bill — the highest in this cycle — signals that customer capex commitments now extend far enough out to support framework-level commentary. The Q1 brief's narrative-arc question about whether AI was a "regime" rather than a wave is now answered.

Incremental margins re-anchored upward. Neil: "we've talked for a long time about 40% incrementals on mid-single-digit growth…when you're growing at multiples of that, you have an opportunity to outperform" and quantified Q2 core incrementals at "just under 59%." Three quarters ago the framework was ~40% incrementals as the through-cycle steady state; this quarter management is putting a near-60% number on the table at current growth rates. Segment operating margins jumping to 33% in both CSG and EISG (from 27% in Q1) is the proof — this is operating leverage at scale, not mix benefit.

Supply chain posture flipped from monitoring to proactive engagement. Neil announced FY26 capex raised from $160M to $200M (+25%) with "the majority of that incremental investment going to aid in that ramp" of new AI products, and explicitly stated "we're actively managing the supply chain, more so than we were six months ago." That is management telling you they are deliberately building physical capacity ahead of demand — a posture that only makes sense if the multi-year customer dialogue Satish referenced is concrete enough to underwrite the capex.

The IEEPA tariff carve-out from last quarter has quietly disappeared from the disclosure. The Q1 FY26 raise was explicitly contingent on excluding any Supreme Court ruling impact; this quarter's raise to "high 20s" carries no equivalent caveat in the qualitative statements. Either the risk has resolved or management has decided it is no longer material enough to flag — both readings are constructive for the base case.

Recurring themes management leaned on this quarter:

AI infrastructure scaling driving record orders (56% YoY, $2.51B)Heterogeneous ecosystem (optical/electrical, open/closed standards, pluggable/integrated) creating broad TAMManufacturing validation and yield improvement as key value driver alongside R&DMulti-vendor complexity (GPUs, CPUs, DPUs, NICs, switches, memory) expanding test requirementsAerospace defense and semiconductor as co-equal growth pillars with strong program spendSpace/NTN/6G as emerging long-term secular opportunities positioning Keysight early

Risks management surfaced:

Supply chain constraints on new product ramps (mitigated by vertical integration and capex increase)Customer buying behavior shift toward faster conversion velocity in AI (though no pull-forward discerned)Sequential revenue guidance slightly down Q2-to-Q3 due to mix and new product introduction timingMemory cost inflation exposure (noted as immaterial: 'pretty small portion of our overall BOM')Execution risk on acquisition integration ($375M FY26 revenue target from recent acquisitions)

Answers to last quarter's watch list

Commercial Communications second derivative. Q2 came in at +40%, accelerating from Q1's +33% on a tougher comp ($858M Q2 actual vs implied $613M Q2 FY25 base). This decisively rejects the "comp-driven inflation" hypothesis — the second derivative is positive, not negative. Status: Resolved positively

IEEPA tariff outcome and the carve-out's reversal. The carve-out has disappeared from this quarter's qualitative guidance language without explicit comment. No discrete tariff drag or tailwind was quantified on the print. The implicit signal — folding tariff risk silently back into the base case while raising the base case — is itself a constructive tone signal. Status: Resolved positively by absence of caveat

EISG operating margin durability at 27%. EISG operating margin came in at 33% in Q2 — not just held, but expanded by 600bps from Q1. This is structural operating leverage at higher revenue, not Q1 mix benefit. Status: Resolved positively

A&D second consecutive +15%+ print. A&DG grew +24% in Q2, accelerating from Q1's +18% and the third consecutive quarter of acceleration off Q4's +9%. The structural-tailwind reframing is fully validated by the numbers. Status: Resolved positively

FY26 raise math vs. H1 actuals. Management did raise FY26 again on the Q2 call — from "just above 20%" to "high 20s percent range." This confirms the Q1 hypothesis that prior framing was deliberately conservative. With H1 averaging ~27% growth and the new FY framing at high-20s, H2 is now embedded at roughly mid-to-high-20s rather than decelerating to mid-teens. Status: Resolved positively

What to watch into next quarter

Q3 revenue beat magnitude. The Q3 guide of $1.73–$1.75B sits below the Q2 actual of $1.717B at the low end and only marginally above at the high end — management framed this as "historically typical sequential" but it implies tighter sequencing than the AI demand commentary would suggest. Watch whether Q3 actual prints above $1.78B (a ~2% upside beat), which would suggest the guide carries the same conservatism the Q1 and Q2 guides did. A guide-in-line print would signal capacity constraints are real.

AI revenue dollar disclosure. Satish referenced AI business "in the $500–600M range" per the tone analysis but Keysight has not formally segmented AI as a reported line. Watch whether the next call introduces an explicit AI revenue dollar base or growth rate — explicit disclosure would validate the multi-year runway language and let the market underwrite the durability rather than infer it.

Order book extension past 1.2x book-to-bill. Q2 hit 1.19x, the highest in the recent sequence. Watch whether Q3 sustains above 1.10x — a book-to-bill back below 1.0x would indicate the Q2 orders included pull-forward, undercutting the multi-year runway thesis.

CSG operating margin holding at 33%. The 600bps QoQ jump is the single most important profitability data point — incremental margins at 59% only sustain if revenue keeps growing at current rates. Watch whether Q3 CSG OM holds above 30% on the slightly lower sequential revenue guide; a return to 27% would suggest the Q2 print captured peak operating leverage.

Capex execution against $200M raised number. Management raised capex by $40M specifically for AI product ramp. Watch H2 FY26 free cash flow margin — Q2 FCF margin was 27.5% ($472M on $1.717B). A material compression in H2 FCF margin would mean capex absorption is offsetting incremental EBITDA, while sustained 25%+ FCF margin would validate that the operating leverage funds the capex with room to spare.

Sources

Keysight Q2 FY2026 press release: https://www.sec.gov/Archives/edgar/data/1601046/000160104626000019/exhibit991-q226pressrelease.htm
Keysight Q2 FY2026 earnings call — prepared remarks and Q&A (FY26 raise to "high 20s," AI H1 vs full FY25 comparison, capex raise to $200M, multi-year runway commentary, incremental margin framing)
Tapebrief Q1 FY2026 brief (prior-quarter guidance baseline, watch list, narrative arc context)

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