Industrial Automation And Automotive Semiconductors Will Shape Future Markets

Key Takeaways

• Growth in industrial automation and automotive semiconductor demand, alongside stable high-margin product focus, positions the company for resilient revenue and margin expansion.
  
• Investments in domestic manufacturing and efficient tax incentives enhance supply chain strength, cash flow, and potential for increased shareholder returns.
  
• Texas Instruments faces increasing competition, shifting technology trends, and geopolitical uncertainties, raising risks of margin pressure, capacity underutilization, and volatile revenue in key end markets.

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.

• The ongoing acceleration of industrial automation and digital transformation across diverse industrial sectors is driving sustained recovery and above-average growth in TI's core industrial end market, which increased by double-digits year-over-year. As automation and digitalization continue to proliferate globally, demand for robust analog and embedded chips is expected to boost revenue and support stable, high-margin sales.
  
• Expansion in automotive semiconductor content, especially for electric vehicles and ADAS, is poised to drive future growth as automotive recovery lags the broader cyclical upturn. With content per vehicle rising and automotive representing a key longer-term demand vector, an eventual rebound could provide incremental revenue tailwinds and enhance gross margins as higher-complexity products ship.
  
• Strategic investment in U.S.-based 300mm wafer fabs and a diversified global manufacturing footprint uniquely position TI to benefit from evolving supply chain localization and customer preferences for geopolitically resilient suppliers. This advantage is likely to help win incremental business, strengthen preferred supplier status, and improve long-term gross margins and pricing power.
  
• Management is signaling that the benefits of recent U.S. tax incentives and R&D/capex expensing will materially lower future cash tax rates, bolstering free cash flow and enabling increased capital returns (dividends/buybacks), contributing to long-term earnings per share expansion even in periods of muted sales growth.
  
• TI continues to focus on long-life, high-margin product portfolios targeting industrial and automotive applications, which typically feature lower product obsolescence and longer revenue cycles. This strategy supports stable, recurring revenues and net margins, and positions the company to capture outsized share of ongoing semiconductor content growth per end product.

Texas Instruments Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Texas Instruments's revenue will grow by 10.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 30.1% today to 35.7% in 3 years time.
• Analysts expect earnings to reach $7.9 billion (and earnings per share of $8.48) by about July 2028, up from $5.0 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $10.8 billion in earnings, and the most bearish expecting $5.4 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 30.7x on those 2028 earnings, down from 34.6x today. This future PE is greater than the current PE for the US Semiconductor industry at 27.9x.
• Analysts expect the number of shares outstanding to decline by 0.44% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.8%, as per the Simply Wall St company report.

Texas Instruments Future Earnings Per Share Growth

Risks

• The analog and embedded chip segments, which are TI's core business, may face commoditization pressures as more competitors-including Chinese firms-enter the market, potentially leading to price wars, slower revenue growth, and margin compression over time.
  
• Heavy ongoing investments in expanded in-house manufacturing and 300mm wafer fabs raise the risk of underutilized capacity if demand falls short of expectations, which could result in lower return on assets, higher depreciation charges, and negative impacts on earnings and free cash flow.
  
• Ongoing geopolitical instability and shifting tariff regimes (especially between the U.S. and China) continue to create supply chain uncertainty and volatile customer demand patterns, exposing TI to sales swings, inventory risks, and potential margin pressure on global revenues.
  
• Accelerating technological shifts, such as increased focus on advanced logic and AI-specific processors, may reallocate industry value away from analog and discrete segments, threatening Texas Instruments' long-term competitive position and future revenue growth in rapidly evolving markets.
  
• TI's substantial exposure to industrial and automotive end markets, which remain sensitive to global trade policy and economic cycles, introduces risk of revenue volatility and prolonged margin pressure during cyclical downturns or sector-specific slowdowns.

Valuation

• The analysts have a consensus price target of $205.726 for Texas Instruments 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 $260.0, and the most bearish reporting a price target of just $125.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $22.3 billion, earnings will come to $7.9 billion, and it would be trading on a PE ratio of 30.7x, assuming you use a discount rate of 9.8%.
• Given the current share price of $191.38, the analyst price target of $205.73 is 7.0% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• 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.