IoT And Electrification Will Open Vast Market Opportunities

Key Takeaways

• Strong positioning in industrial and automotive recovery, and long-term demand for analog and embedded chips support sustained growth opportunities and market expansion.
  
• Investments in manufacturing, supply chain resilience, and disciplined capital allocation provide competitive advantages and enable stable, shareholder-focused returns.
  
• Heightened competition, geopolitical risks, and reliance on mature technologies may compress margins and stifle growth, while R&D and market cyclicality threaten revenue consistency and profitability.

Catalysts

Designs, manufactures, and sells semiconductors to electronics designers and manufacturers in the United States, China, rest of Asia, Europe, Middle East, Africa, Japan, and internationally.

• End markets such as industrial and automotive are demonstrating broad-based recovery, with customer inventories at historically low levels and demand showing signs of accelerating growth. This positions Texas Instruments to capture a surge in orders as customers replenish inventory, leading to higher revenue growth rates as these sectors ramp up production to meet robust end demand.
  
• The rapid increase in semiconductor content per device, particularly in industrial automation, edge computing, and the electrification of vehicles, is expected to sustain elevated, multi-year demand for analog and embedded chips. Texas Instruments, with its deep portfolio and strength in analog and power management, is poised to benefit from a structural tailwind in total addressable market expansion, supporting long-term revenue and earnings growth.
  
• Ongoing investments in expanding in-house 300mm wafer fabrication capacity, as well as enhancing manufacturing and supply chain flexibility, provide Texas Instruments with a cost and resilience advantage. The company's ability to quickly adapt logistics, dual-source production, and maintain geopolitically dependable supply is expected to structurally increase gross margins and mitigate risks from global supply disruptions, directly supporting improvements in profitability.
  
• The company’s broad and diverse customer base, combined with its proven ability to navigate tariff changes and regional manufacturing requirements, helps reduce cyclicality in revenue and ensures more stable top-line growth. This resilience is especially valuable as global supply chains become more regionalized and onshoring trends intensify, putting Texas Instruments in a stronger position to win share versus less-flexible competitors.
  
• Texas Instruments’ demonstrated capital allocation discipline, highlighted by sustained strong free cash flow, consistent buybacks, and dividend growth, signals management’s confidence in durable earnings power and long-term value creation. As elevated capital expenditures begin to normalize, a greater portion of growing free cash flow can be returned to shareholders, supporting robust growth in earnings per share over the coming years.

Texas Instruments Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Texas Instruments compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Texas Instruments's revenue will grow by 15.5% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 30.2% today to 33.8% in 3 years time.
• The bullish analysts expect earnings to reach $8.3 billion (and earnings per share of $10.87) by about April 2028, up from $4.8 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 33.7x on those 2028 earnings, up from 30.1x today. This future PE is greater than the current PE for the US Semiconductor industry at 22.9x.
• Analysts expect the number of shares outstanding to decline by 0.22% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.12%, as per the Simply Wall St company report.

Texas Instruments Future Earnings Per Share Growth

Risks

• Intensifying competition from Chinese and other low-cost regional analog and embedded chip makers is leading to price compression in both general-purpose and specialized segments, which over the long term may erode Texas Instruments’ average selling prices and industry margins, curbing revenue and ultimately pressuring future earnings.
  
• The company’s strategy continues to focus on mature process technologies and its core analog and embedded markets, which, while cost-effective, risks underinvesting in advanced process nodes and higher-growth, next-generation applications, potentially resulting in a loss of market share and stalling top-line revenue growth in the face of evolving customer needs.
  
• Increasing global trade barriers and geopolitical tensions—especially tariffs impacting a significant portion of TI’s business with China and possibly requiring complex and costly supply chain adjustments—could lead to sustained higher operating costs, disrupt established customer relationships, and create unpredictable swings in revenues and net income.
  
• Texas Instruments' heavy exposure to cyclical markets such as automotive and industrial, despite recent signs of recovery, exposes its revenues and operating profits to greater volatility, especially during sector downturns or slower-than-expected adoption of IoT and automation, ultimately impacting revenue consistency and earnings stability.
  
• Rising research and development intensity is needed to meet evolving customer and regulatory demands as well as increased environmental compliance requirements, which risks outpacing TI’s operating leverage, placing growing pressure on net margins and free cash flow if these investments are not matched with sufficient new revenue opportunities.

Valuation

• The assumed bullish price target for Texas Instruments is $239.87, which represents two standard deviations above the consensus price target of $180.39. This valuation is based on what can be assumed as the expectations of Texas Instruments's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $248.0, and the most bearish reporting a price target of just $125.0.
  
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $24.7 billion, earnings will come to $8.3 billion, and it would be trading on a PE ratio of 33.7x, assuming you use a discount rate of 9.1%.
  
• Given the current share price of $160.77, the bullish analyst price target of $239.87 is 33.0% 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.