Last Update 05 Jan 26

Fair value Decreased 5.77%

TXN: Margin Reset And Cyclical Softness Will Set Up Future Rebound

Narrative Update

Analysts have reduced the implied fair value for Texas Instruments to $245 from $260. This reflects updated views on higher required returns, more moderate revenue growth, softer profit margins, and a higher future P/E multiple following recent price target cuts and more cautious commentary on margins, utilization, and end demand.

Analyst Commentary

Recent Street research around Texas Instruments centers on price target cuts and a more cautious stance on margins and near term demand. There are still some constructive signals you can keep in mind when you think about valuation and the company’s ability to execute through the cycle.

Bullish analysts generally acknowledge near term headwinds yet point to solid recent results, disciplined inventory management, and what they view as a manageable reset in expectations rather than a breakdown in the story.

Bullish Takeaways

JPMorgan describes the latest quarter as solid, with revenue ahead of expectations and earnings in line. This suggests to supportive analysts that Texas Instruments is still executing against its plan even as guidance becomes more conservative.
The comment that the deceleration in year over year growth is "disappointing but not unexpected" frames the current phase as part of a typical cycle in semiconductors for bullish analysts rather than a structural problem. This can help anchor medium term growth assumptions.
Some bullish analysts see the company’s conservative outlook and reduced estimates as resetting the bar. This can lower the risk of future disappointments relative to expectations and may support the existing P/E multiple if execution stays consistent.
By highlighting macro uncertainty as a key reason for cautious guidance, JPMorgan implicitly keeps the focus on external factors instead of company specific issues. More optimistic investors may view this as a reason to monitor for a potential turn in demand rather than write off the long term case.

Overall, bullish research is not ignoring the margin pressure from reduced fab utilization or the slower trajectory of year over year growth. It is instead framing these as near term cycle and macro related issues while maintaining confidence in Texas Instruments’ ability to work through them.

What's in the News

U.S. officials are signaling that long discussed tariffs of about 100% on imported semiconductors, excluding companies manufacturing in or committed to the U.S., might be delayed, which affects the broader chip group that includes Texas Instruments (Reuters).
Reports indicate the Trump administration is taking a more cautious approach on semiconductor tariffs to limit additional tensions with China, again with potential implications for U.S. chipmakers such as Texas Instruments (Reuters).
U.S. export restrictions are contributing to shortages of advanced semiconductors in China, with authorities there prioritizing supply to local players like Huawei, a backdrop that touches the global chip sector that Texas Instruments is part of (Wall Street Journal).
China has suspended export controls for one year on several critical minerals, including gallium and germanium used in certain semiconductors, which relates to supply inputs for chip companies such as Texas Instruments (New York Times).
Renesas Electronics is exploring a sale of its timing division in a potential US$2b deal, and Texas Instruments is cited among potential buyers, alongside Infineon, in early discussions (Reuters).

Valuation Changes

Fair value was reduced from US$260.00 to US$245.00, representing a modest cut to the implied equity value per share.
The discount rate increased from 10.31% to 10.86%, indicating a higher required return in the updated work.
Revenue growth was revised from 18.76% to 15.86%, reflecting a more measured view on top line expansion.
The net profit margin was adjusted from 41.85% to 34.35%, pointing to softer assumed profitability in the model.
The future P/E multiple was lifted from 26.84x to 32.68x, implying a higher valuation multiple applied to forward earnings.

Unique manufacturing investments and favorable US policy position Texas Instruments for higher margins, strategic contracts, and accelerated profit growth as supply chains onshore.
Dominance in AI-driven and connected devices markets signals strong, sustained revenue and free cash flow growth, with robust shareholder returns outpacing expectations.
Exposure to geopolitical and supply chain risks, high capital outlays, pricing pressure, and slow adaptation to high-growth tech pose challenges to sustained growth and profitability.

Catalysts

About Texas Instruments

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.What are the underlying business or industry changes driving this perspective?

Analyst consensus expects strong industrial and automotive recoveries, but the pace is likely understated; with industrial already growing nearly 20% and automotive poised for a sharper catch-up given pent-up demand and increasing electronic content per vehicle, both revenue growth and gross profit could substantially exceed current expectations.
Analysts broadly agree that geopolitically dependable manufacturing is a stabilizer, yet Texas Instruments is uniquely positioned to capture major share gains as further tariffs or onshoring incentives arise-its five-year head-start on U.S. fab investments could rapidly translate into higher margin, less price-sensitive contracts for strategic customers, materially accelerating net margin growth.
The rapid proliferation of AI-driven infrastructure spending in data centers and enterprise systems is driving over 50% annual growth in this segment for TI, suggesting a multi-year step-change in enterprise and communications end-markets that will fuel above-trend revenue and operating profit growth.
Texas Instruments' dominant presence in the expansion of smart, connected devices-across industrial, consumer, and automotive-will drive long-duration, high-mix sales as the number of analog and embedded chips per product rises, likely resulting in sustained free cash flow per share outperformance.
Enhanced U.S. federal tax incentives and increased ITC credits on both R&D and capital expenditures are expected to deliver multi-year reductions in cash tax rates, potentially unlocking record free cash flow and allowing for significantly higher capital returns via buybacks and dividends than analyst consensus currently factors in for earnings per share growth.

Texas Instruments Earnings and Revenue Growth

Texas Instruments Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

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 18.8% annually over the next 3 years.
The bullish analysts assume that profit margins will increase from 30.1% today to 41.9% in 3 years time.
The bullish analysts expect earnings to reach $11.7 billion (and earnings per share of $12.97) by about September 2028, up from $5.0 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 26.8x on those 2028 earnings, down from 33.5x today. This future PE is lower than the current PE for the US Semiconductor industry at 33.5x.
Analysts expect the number of shares outstanding to decline by 0.34% per year for the next 3 years.
To value all of this in today's terms, we will use a discount rate of 10.31%, as per the Simply Wall St company report.

Texas Instruments Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?

Texas Instruments' exposure to ongoing deglobalization, tariffs, and shifting supply chains introduces significant uncertainty and could limit access to global markets, increasing costs and ultimately constraining long-term revenue growth and margin expansion.
Persistent geopolitical tensions, notably between the US and China, present risk to TI's international sales since China represents about 20% of overall revenue and recent quarters have shown volatility driven by policy and trade measures, which may undermine both revenue stability and market share.
Recent high levels of capital expenditures for manufacturing expansion create pressure on free cash flow and may lead to lower net margins or even overcapacity if end-market demand fails to materialize as expected, particularly as guidance suggests cautious outlooks for key segments like automotive and industrial.
Continued commoditization in analog and embedded markets is likely to erode pricing power, compressing gross margins and EBIT as customers increasingly pressure for lower prices and competition intensifies across the semiconductor industry.
TI's slower pivot toward high-growth areas like AI and advanced wireless, as indicated by their heavier reliance on general-purpose chips in fast-evolving market segments, risks diminishing competitiveness and limits revenue growth opportunities in sectors that are increasingly driving semiconductor demand industry-wide.

Valuation

How have all the factors above been brought together to estimate a fair value?

The assumed bullish price target for Texas Instruments is $260.0, which is the highest price target estimate amongst analysts. 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 $260.0, 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 $27.9 billion, earnings will come to $11.7 billion, and it would be trading on a PE ratio of 26.8x, assuming you use a discount rate of 10.3%.
Given the current share price of $185.03, the bullish analyst price target of $260.0 is 28.8% 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.

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Disclaimer

AnalystHighTarget 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 AnalystHighTarget 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 AnalystHighTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

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