TXN — Texas Instruments Incorporated

The tape and the sell-side agree on direction. On 2026-07-22 TXN reported Q2 2026 revenue of $5.46B vs ~$5.24B consensus and EPS of $2.14 vs $1.92, then guided Q3 2026 to $5.65-6.15B revenue and $2.23-2.57 EPS — a rare beat-and-raise with sequential acceleration. The stock responded with a 40.8% six-month gain and a 3.8% pop to $268.70 as of 2026-09-13, and analysts have been chasing it higher (Citi to $345 as a top pick, Cantor at $340 neutral), leaving a consensus target near $325 vs the $268.70 price. What keeps it from being euphoric: a -10.8% three-month drawdown, a trailing multiple of 40.7x vs a 26.3x five-year average, and a genuinely split rating book (31 buy / 28 hold / 6 sell) reflecting the view that the recovery is already well discounted.

This is a clear inflection, not a blip. Revenue bottomed at $3.661B in Q1 2024 and has risen for eight consecutive quarters to $5.463B in Q2 2026 — roughly 49% off the trough — and YoY growth is accelerating rather than fading: +10.4% in Q4 2025, +18.6% in Q1 2026, +22.8% in Q2 2026. EPS shows heavier operating leverage on the way up: +0.7% YoY in Q3 2025 and -2.3% in Q4 2025 ($1.27), then +32.0% in Q1 2026 ($1.69) and +51.8% in Q2 2026 ($2.14). Gross margin has expanded 55.9% → 58.0% → 61.4% across the last three reported quarters and operating margin 33.3% → 37.5% → 42.3%, now above the Q3 2023 level of 41.7% and closing on the shortage-era peak. R&D is essentially flat at $510-535M per quarter against a much larger revenue base, so this is real operating leverage rather than cost cutting. The underappreciated leg: capex is falling hard — from $1.305B in Q2 2025 to $676M in Q1 2026 and $514M in Q2 2026 — which swung quarterly free cash flow from -$274M (Q1 2025) to +$2.189B (Q2 2026).

Expensive on trailing numbers, closer to fair on forward numbers — but with no cushion. As of 2026-09-13 the $268.70 price equals 40.7x trailing EPS of $6.636 and 12.6x TTM sales, versus a five-year average P/E of 26.3x and average P/S of 9.15x; PEG is 2.06 and EV/EBITDA is 28.3x with P/B at 13.6x. On the published next-FY EPS estimate of $8.511 the forward P/E is 31.6x — though that estimate looks stale, since Q2 2026 actual EPS of $2.14 plus Q3 2026 guidance of $2.23-2.57 implies FY2026 EPS closer to $8.75. Rolling to my FY2027E EPS of roughly $9.90, the stock trades near 27x, essentially in line with its own five-year average. Net: the market is paying today for the recovery to continue into 2027.

The market has already paid for roughly a year of forward earnings growth — at $268.70 the stock discounts about $9-10 of EPS, so the burden is on delivery, not on re-rating. The late-October Q3 2026 print is the referee: guidance of $5.65-6.15B and $2.23-2.57 EPS requires the +13.2% QoQ sequential jump from Q2 to be sustained; hold that, keep gross margin above 60%, and the FY2027 EPS path near $10 makes today's price roughly fair. If the industrial and data-center restock slows and sequential growth flattens, a 31x forward multiple on ~$8.75 of EPS has real downside toward the mid-20s multiple the stock historically averages — a $220-240 zone. Watch the sequential revenue delta, not the YoY headline: YoY is flattered by a weak 2025 base and will mechanically decelerate even in a healthy upcycle.

As of 2026-09-13, RSI(14) stood at 51.68 — dead neutral, neither overbought nor oversold after the pullback. The $268.70 price sat +2.02% above the 20-day SMA (~$263), -3.22% below the 50-day SMA (~$278) and +11.27% above the 200-day SMA (~$242), with the 52-week range at $152.73-$334.03. That is a textbook consolidation after a big run: +40.8% over six months, -10.8% over three, and -2.85% over one, with price pinched between the medium-term moving averages. The long-term trend is intact (200-day rising and well below price) but short-term momentum has cooled. Entry-timing read: there is no overbought penalty for buying here, but no urgency either — a reclaim of the ~$278 50-day would confirm the uptrend resuming, while a break of ~$242 would signal the multi-quarter advance is over.

• AI/data-center power demand: analog and power-management chips that regulate voltage inside high-density GPU racks have turned data centers into TI's fastest-growing end market — a demand vector that did not exist at the 2022 peak.
• Industrial and automotive inventory restocking: after roughly two years of customer destocking, both verticals (together the majority of TI revenue) are accelerating sequentially; this is the single biggest swing factor in the current numbers and the most likely thing to surprise in either direction.
• U.S. CHIPS Act incentives and domestic fab buildout: TI's 300mm capacity expansion is government-supported but capital-heavy, and exposes the company to shifting tariff, incentive and export-control policy.
• Chinese analog competition: Chinese fabs pushing into commodity analog could cap long-run pricing power and limit how far gross margin recovers relative to prior peaks.
• Cost-of-capital sensitivity: with $12.9B of long-term debt against $3.66B of cash, both TI's capital-return model and its 40x trailing multiple are levered to the discount rate — multiple compression is a bigger near-term risk than an earnings miss.

• Q3 2026 earnings (expected late October 2026): the decisive test of whether the +13.2% QoQ sequential revenue jump in Q2 2026 persists and whether gross margin holds above 60%.
• Capex normalization and the free-cash-flow inflection: capex fell to $514M in Q2 2026 from $1.305B a year earlier, swinging quarterly FCF to $2.189B — continued tapering funds larger buybacks and faster dividend growth.
• Silicon Labs acquisition (announced 2026, targeted close H1 2027): expands the wireless connectivity portfolio and could open new sockets, but brings integration and balance-sheet risk.
• Dividend and capital-return policy: the board declared $1.42 per quarter (2.06% yield) with room to raise if FCF keeps compounding.
• CFO transition execution and any strategic update on the 300mm roadmap or capacity utilization.

• Valuation risk: 40.7x trailing and ~31.6x on the published forward estimate versus a 26.3x five-year average leaves no cushion — a growth stall could compress the multiple as much as it cuts earnings.
• Cyclicality: the current strength is a rebound off a two-year downturn, and Q4 2025 was already a sequential down-quarter ($4.742B → $4.423B); if industrial/auto restocking ends or AI capex digests, sequential growth can flatten quickly.
• Capital intensity and leverage: $12.9B long-term debt against $3.66B of cash (D/E 0.78) after a multi-year fab buildout; a downturn would pressure margins, FCF and the buyback simultaneously.
• Chinese analog price competition in commodity parts, which could cap the gross-margin recovery below prior-cycle peaks and slow the EPS ramp.
• End-market concentration: industrial and automotive customers are tariff- and cycle-exposed, so one inventory reset hits the majority of revenue at once.

Texas Instruments is a wide-moat analog franchise in the middle innings of a real cyclical recovery — revenue is up 49% from the Q1 2024 trough, operating margin has snapped back above 42%, and the capex cycle that crushed free cash flow in 2024-2025 has clearly turned ($2.189B of FCF in Q2 2026 versus -$274M in Q1 2025). The problem is the price: at $268.70 you pay 40.7x trailing and roughly 27x my FY2027 estimates, and my own intrinsic value estimate lands near $278 — essentially where it trades. Own it for the FCF-driven dividend-growth story, not for multiple expansion; this is a high-quality business at a full price, not a bargain.

I applied a 28x forward P/E to my own FY2027E EPS of ~$9.90 (built bottom-up: Q2 2026 actual of $2.14 plus Q3 2026 guidance midpoint of $2.40 implies FY2026 EPS near $8.75, then ~8% revenue growth to ~$25B with a ~36% net margin and ~915M shares gives ~$9.90), giving 28 × 9.90 ≈ $277, rounded to $278. The 28x multiple is a modest premium to TI's 26.3x five-year average, justified by the capex-driven FCF inflection and the new data-center power demand vector, but deliberately below the 40.7x trailing and ~31.6x published-forward multiples the market is currently paying.