Every 1.6-terabit optical module and 224-gigabit electrical lane bound for an AI data center has to be proved out on somebody's instruments before it ships. Keysight Technologies, which makes the oscilloscopes, network and signal analyzers and bit-error-rate testers that do that proving, took in $2.05bn of orders in its fiscal second quarter against $1.72bn of revenue — a book-to-bill near 1.19, and a record.

The question worth asking about a company whose stock has more than doubled in a year is how much of the growth it bought. Keysight paid $1.4bn net of cash for Spirent Communications, a British network-test firm, and separately acquired the French simulation-software house ESI Group. Both flatter the reported numbers. But the company disclosed that acquisitions contributed only 700 basis points of the 56% order growth and currency another 100, leaving core order growth of 48%. Revenue was up 24% on the same organic basis. The Communications Solutions unit, which serves network equipment makers and datacom customers, grew 35%; the Electronic Industrial arm, selling into semiconductor and automotive engineering labs, grew 24%.

Management told investors on the call that AI-related business in the first half of fiscal 2026 — roughly $500m to $600m — had already exceeded all of fiscal 2025. Most of Keysight's business is booked and recognized inside six months, so backlog does not disguise much. Free cash flow was a record $472m, and $220m of it went to buybacks.

The margin is not what it looks like

Reported operating margin jumped to 23.7% from 15.8%. That is an accounting artifact. A Supreme Court ruling that tariffs imposed under the International Emergency Economic Powers Act (IEEPA) were unlawful led Keysight to book a $100m receivable and a $40m customer-refund liability, cutting reported revenue by $40m and expenses by $97m. Strip the expense credit and underlying operating margin lands near 17.6% — about flat year on year, and equal to the full-year fiscal 2025 figure. Volume is growing; operating leverage, so far, is not.

What the price already assumes

At $357.82 the shares trade at 58.9x trailing and 35.2x forward earnings, 10.0x trailing sales and a 2.4% free-cash-flow yield. Against its own history that sales multiple sat near 4.0x at the end of fiscal 2023, 5.2x in 2024 and 5.9x in 2025. It has roughly doubled.

What has stopped is the stretching. Since early May the trailing price/earnings ratio has moved from 59.2x to 58.9x and price/sales from 10.1x to 10.0x, while the market value rose 6.3% to $61.15bn. Earnings genuinely grew into the price. The forward multiple, though, has crept from about 33x to 35.2x, because next year's estimates have not risen as fast as this year's results.

The shares are up 2.5% over three months and sit 4.2% below their 52-week high, having lagged Teradyne, which makes chip-testing machines, at +23.9%, and the switch maker Arista Networks at +40.0%. Among the storage-and-cloud names Keysight is grouped with, NetApp — enterprise data-storage systems, 5.4% revenue growth — rose 72.7% over the same stretch on a multiple that doubled, while the developer-cloud host DigitalOcean fell 16.1%. Keysight is the one whose numbers moved first and whose price moved least.

Into the 18 August print, guidance is $1.730bn–$1.750bn of revenue and $2.43–$2.49 of non-GAAP earnings per share; consensus sits at the top of both. The average of thirteen analyst targets, $387.69, is about 8% above the last close, with Truist at $376 on a Hold.

The setup

Where it stands — Business accelerating four quarters running and mostly organic, but priced at roughly double its own three-year sales multiple. Would confirm — Fiscal Q3 core order growth above 30% and a book-to-bill again above 1.1 on 18 August. Would invalidate — Underlying operating margin below 17.6% ex-tariff items, or fiscal 2027 revenue guidance under the $7.68bn consensus. Watch next — Fiscal third-quarter results after the close on 18 August 2026. Valuation — 58.9x trailing, 35.2x forward earnings; 10.0x sales versus about 4.0x, 5.2x and 5.9x at the last three fiscal year-ends.