Texas Instruments Incorporated

(NASDAQ Global Select)
Back to all articles
Bullish +62

Texas Instruments (TXN) Sees Profits Recover, but Is the Stock Still Expensive?

Earnings report Financial outlook AI-generated analysis

πŸ“ˆ Texas Instruments reported second-quarter revenue of $5.46 billion, up 23% year-over-year, with industrial revenue growing 30% and data-center revenue doubling.

πŸ’° Operating profit increased 48% to $2.31 billion, driving operating margins higher to 42.3% from 35.1% a year ago.

🏭 Free cash flow reached $6.53 billion for the trailing twelve months ended June 2026, up significantly from $1.76 billion in the prior year.

πŸ’Έ The company expects to spend between $2 billion and $3 billion on factories and equipment in 2026 as capacity expansion nears completion.

πŸ“‰ The stock trades at roughly 28 times forward earnings and 41.43 times trailing earnings, reflecting investor expectations of continued profit growth.

πŸ€– Demand for analog chips is expanding into AI infrastructure, providing a second source of growth alongside the industrial recovery.

πŸ’Ή Texas Instruments plans to fund its $7.5 billion Silicon Labs acquisition using cash and debt, utilizing the stronger cash generation.

πŸ“Š Hedge fund participation increased in Q2 2026, with stakes rising from $3.91 billion to $6.85 billion held by 111 funds.

βš–οΈ Management guided third-quarter earnings per share to $2.23 to $2.57, indicating an expectation of continued profitability growth.

Bullish Signals
  • Texas Instruments reported a 48% increase in operating profit to $2.31 billion in the second quarter, driven by a 23% rise in revenue.
  • Operating margins expanded significantly to 42.3%, up from 35.1% a year ago, as fixed manufacturing costs are spread over higher production volumes.
  • Free cash flow surged to $6.53 billion for the trailing twelve months ended June 2026, more than tripling the previous year's figure.
  • The company is benefiting from recovering industrial demand and a new growth vector in AI infrastructure requiring analog chips.
  • Management raised third-quarter earnings guidance to $2.23-$2.57 per share, exceeding the prior quarter's performance.
Risk Factors
  • The stock trades at a premium valuation of roughly 28 times forward earnings and 41.43 times trailing earnings, which may limit upside for new buyers.
  • High valuations imply that investors expect industrial demand to remain strong enough to sustain gains after the initial rebound wears off.
  • The company plans a significant $7.5 billion acquisition of Silicon Labs, which will utilize cash and debt rather than fully reaching shareholders immediately.
Full Analysis
Texas Instruments (TXN) is experiencing a recovery in profitability as industrial demand rebounds and heavy factory spending begins to ease. In the second quarter, the company reported revenue of $5.46 billion, a 23% increase year-over-year, driven by a 30% rise in industrial sales and a doubling of data-center revenue. Operating profit surged 48% to $2.31 billion, pushing operating margins up to 42.3% from 35.1% the prior year. The improvement in profitability is largely attributed to fixed manufacturing costs being spread across higher volumes, a benefit of owning its own factories. Free cash flow for the twelve months ended June 2026 reached $6.53 billion, a significant increase from $1.76 billion a year earlier, aided by lower capital expenditures and CHIPS Act incentives. Management expects factory spending to remain between $2 billion and $3 billion in 2026 as major capacity expansions near completion. Despite these strong operational fundamentals, the stock trades at a premium valuation of approximately 28 times forward earnings and 41.43 times trailing earnings. While this multiple is lower than its peak of roughly 51x in June 2026, it remains above the sector median of 34.64x. Investors are betting that sustained industrial demand will justify the price, though the article notes the stock may be less attractive for new purchases compared to high-growth AI stocks.