德州仪器

Texas Instruments reported second-quarter revenue of $5.46 billion, up 23% year over year and above the midpoint of guidance of $5.20 billion. TI expects third-quarter revenue to be $5.80 billion, up 22% year over year and ahead of FactSet consensus estimates of $5.63 billion.

Why it matters: We’re pleased with TI’s results, as it saw ongoing strong growth in its industrial and data center end markets, while achieving accelerating growth in automotive after a prolonged but relatively shallow downturn. Data center revenue for TI doubled year over year, thanks to the ongoing rollout of 800-volt power equipment in artificial intelligence data centers. Industrial grew over 30% year over year with a strong cyclical recovery. Auto grew about 15% year over year, TI’s fastest quarterly growth since 2023.

The bottom line: We raise our fair value estimate for wide-moat TI to $325 from $310. Shares sold off 3% after hours, likely as investors were seeking even stronger data center growth amid the AI boom. We’re pleased with TI’s data center growth and view the selloff down to about $285 as a buying opportunity. TI stressed that it has ample capacity and clean room space to take on new chip orders. Given the shortages popping up all over the AI supply chain, we think that TI’s excess capacity might give it a strategic advantage over peers in the 800-volt rollout.

Coming up: We think TI’s September forecast implies gross margin in the 63% range, which would be up about 150 basis points sequentially. Higher sales levels, better factory utilization, and favorable pricing should drive gross margin higher, not only in September but also in the following few quarters. TI normally sees seasonal strength in personal electronics chip sales, but such a seasonal boost will be muted in the third quarter as high memory chip prices will blunt production of these gadgets. However, strength in other end markets will more than make up for this softness.

BLANK PAGE

Our fair value estimate for Texas Instruments is $325 per share, which implies 2026, 2027, and 2028 price/earnings ratios of 38, 30, and 24 times, respectively.

TI faced a cyclical downturn with a 12.5% revenue decline in 2023 and an 11% decline in 2024. In 2025, the pendulum swung back toward TI, even with tariff concerns, with 13% growth.

Looking ahead, we anticipate an ongoing cyclical recovery in demand. We model 22% growth in 2026 and 15% growth in 2027 as demand normalizes and TI starts to see meaningful revenue associated with the global AI infrastructure buildout. This will bring TI to $24.9 billion in revenue in 2027.

On a long-term, midcycle basis, we model annual growth of 12%-13% each year through 2030. The firm's core analog and embedded chip businesses should prosper from rising chip content in automotive, industrial, and data centers, offset by flattish revenue in the company's other businesses. We think TI’s expanded in-house manufacturing capacity will serve as a strategic asset that will allow the company to win new business in the near and medium term, particularly given the massive ongoing AI infrastructure buildout where seemingly all types of components and inputs will be in short supply for several more years.

Texas Instruments expanded gross margins for many years, first by focusing on higher-margin analog products and, later, by using the shrewd purchases of used equipment in prior years to gain a cost advantage going forward. For reference, gross margins expanded from 52% in 2013 to 69% in 2022. However, we think the 69% gross margin in 2022 will be TI’s peak for quite some time.

Lower sales levels and factory underutilization caused gross margin to fall to 57% in 2025. Higher sales levels will help TI recover a bit to a 62% gross margin in 2026. Thereafter, as revenue grows nicely, we foresee TI's gross margin reaching 65% in 2028 and nearly 68% in 2030.

Operating margin was a stellar 52% in 2022 but came back to earth to 34% in 2025. We think TI’s operating margin will rise to 43% in 2026 and 46.5% in 2027. In the long run, we expect further operating margin expansion to 54% by 2030.

We have assigned Texas Instruments a wide economic moat rating, thanks to intangible assets around proprietary analog chip design and manufacturing expertise, as well as switching costs that make it difficult to swap out analog chips for competing offerings once they are designed into a given electronic device. As Texas Instruments focuses on analog chips and embedded products like microcontrollers, or MCUs, while significantly diversifying its customer base, we are confident the firm is more likely than not to generate excess returns on capital over the next 20 years.

We believe that leading broad-based chipmakers (which we consider to be those well-versed in analog, mixed signal, and microcontroller semis) benefit from favorable characteristics that lend themselves to economic moats. First, we believe that engineering talent (especially in analog) is difficult to come by, as greater emphasis is placed on digital chip improvements, and it often takes years to train up-and-coming analog engineers in the intricacies of chip designs. Thus, it is extremely difficult for startups to replicate the many years of analog expertise held by incumbents. Leading broad-based chipmakers also face stringent quality requirements in some end markets, such as the automotive industry, for example, where defects can only be tolerated as low as one part per million. Although the broad-based chip market is quite fragmented, it would be difficult for any startup to achieve this level of quality while still being to satisfy high volume production.

Furthermore, broad-based semis like analog and MCU parts tend to make up only a small portion of a product's bill of materials, so purchasing decisions tend to be based on performance rather than price, helping firms retain pricing power. A lower quality tolerance might be acceptable in devices with shorter useful lives, such as smartphones, PCs, and consumer gadgets, but moaty chipmakers tend to have limited exposure to these end markets.

Regarding customer switching costs, we believe that engineers loathe to swap out an analog or MCU from an existing design (again, only to save a few pennies on cost) because of the onerous re-design and re-testing costs associated with the switch. Further, customers also become accustomed to the software and development tools used to test and design a given product.

In our view, Exhibit A for our switching cost thesis is the global chip shortage of 2021 and 2022. Instead of finding untested suppliers or securing any reasonably performing chip they could get their hands on, automotive and industrial companies halted production of their gadgets until their key chip suppliers could get the proper, reliable, well tested, well-designed parts into their customer’s hands. We did not see any meaningful market share loss during the shortage, as customers again waited to receive the necessary chip, rather than re-design their products to take on a lower quality chip instead.

In addition to these favorable moat sources, broad-based chips are trailing edge products that don’t require the hefty investments needed by digital processors to move down Moore’s Law. In turn, broad-based chipmakers profit by having lower ongoing R&D and capital expenditure investments, which helps to contribute to healthy returns on capital for shareholders.

Further, buyers of analog semis typically don't demand smaller chips packed with more transistors, but rather, reliable products that deliver the desired accuracy and precision in power management or signal processing. Shrinking the chip might not necessarily enhance accuracy (and might even serve to reduce it), so analog chips tend to be made with lagging edge manufacturing techniques.

Texas Instruments has a leading market share position in the lucrative analog semiconductor market, holding scale advantages that virtually no other rival can match.

TI’s industrial and automotive end markets continue to prosper from the secular trend of higher chip content per device, as sensors, processors, and connectivity enable smarter, greener, safer devices.

TI is one of several vendors prospering from the shift in AI data centers to 800-volt power systems, which require more complex power semiconductors than less advanced systems.

TI has started massive expansion plans into 300 millimeter wafer fabrication plants in recent years. While these plants should deliver a cost advantage to TI when full, some of these fabs may sit empty for extended periods of time.

If US-China trade tensions continue, customers in China may gravitate toward analog and embedded parts made by Chinese upstarts, rather than those provided by TI.

Despite its strong position and diverse exposure, Texas Instruments is still vulnerable to the cyclicality of the overall semiconductor industry.