Texas Instruments (TXN)

Analog chip manufacturer Texas Instruments (NASDAQ:TXN) reported Q3 CY2025 results topping the market’s revenue expectations, with sales up 14.2% year on year to $4.74 billion. On the other hand, next quarter’s revenue guidance of $4.4 billion was less impressive, coming in 2.7% below analysts’ estimates. Its GAAP profit of $1.48 per share was in line with analysts’ consensus estimates.

Company Overview

Headquartered in Dallas, Texas since the 1950s, Texas Instruments (NASDAQ:TXN) is the world’s largest producer of analog semiconductors.

Texas Instruments’ peers and competitors include Analog Devices (NASDAQ:ADI), Skyworks (NASDAQ:SWKS), Infineon (XTRA:IFX), NXP Semiconductors NV (NASDAQ:NXPI), ON Semi (NASDAQ:ON), and Microchip (NASDAQ:MCHP).

Longer manufacturing duration allows analog chip makers to generate greater efficiencies, leading to structurally higher gross margins than their fabless digital peers. The downside of vertical integration is that cyclicality can be more pronounced for analog chipmakers, as capacity utilization upsides work in reverse during down periods. Read More. The semiconductor industry is broadly divided into analog and digital semiconductors. Digital chips are what most people think of as the brains of almost every electronic device. Their primary purpose is to either store (memory chips) or process (CPUs/GPUs) data. By comparison, analog chips regulate real world signals, such as temperature, speed, sound, or electrical current, converting them into a stream of digital data that can be processed by digital semiconductors. Analog semiconductors are also used to manage power in any electronic device; they convert, store and distribute the electrical energy that comes from a battery or wall plug. Analog chips are found everywhere from household appliances like refrigerators or washing machines, to smartphones, cars and factory production lines.

A company’s top-line performance is one signal of its overall business quality. Strong growth can indicate it’s riding a successful new product or emerging trend. Texas Instruments’s demand was weak over the last two years as its sales fell by 2.4% annually, a rough starting point for our analysis. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions.

Long-term growth is the most important, but short-term results matter for semiconductors because the rapid pace of technological innovation (Moore's Law) could make yesterday's hit product obsolete today. Texas Instruments’s performance shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 2.4% annually.

This quarter, Texas Instruments reported year-on-year revenue growth of 14.2%, and its $4.74 billion of revenue exceeded Wall Street’s estimates by 1.9%. Beyond the beat, we believe the company is still in the early days of an upcycle as this was the third consecutive quarter of growth - a typical upcycle tends to last 8-10 quarters. Company management is currently guiding for a 9.8% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 10.1% over the next 12 months. While this projection implies its newer products and services will fuel better top-line performance, it is still below average for the sector.

Days Inventory Outstanding (DIO) is an important metric for chipmakers, as it reflects a business’ capital intensity and the cyclical nature of semiconductor supply and demand. In a tight supply environment, inventories tend to be stable, allowing chipmakers to exert pricing power. Steadily increasing DIO can be a warning sign that demand is weak, and if inventories continue to rise, the company may have to downsize production.

This quarter, Texas Instruments’s DIO came in at 218, which is 37 days above its five-year average. These numbers suggest that despite the recent decrease, the company’s inventory levels are higher than what we’ve seen in the past.

Gross profit margin is a key metric to track because it shows how much money a semiconductor company gets to keep after paying for its raw materials, manufacturing, and other input costs.

Texas Instruments’s gross margin is well ahead of its semiconductor peers, and its strong pricing power is an output of its differentiated, value-add products. As you can see below, it averaged an excellent 58% gross margin over the last two years. That means Texas Instruments only paid its suppliers $41.97 for every $100 in revenue.

This quarter, Texas Instruments’s gross profit margin was 57.4%, marking a 2.2 percentage point decrease from 59.6% in the same quarter last year. Texas Instruments’s full-year margin has also been trending down over the past 12 months, decreasing by 1.1 percentage points. If this move continues, it could suggest a more competitive environment with some pressure to lower prices and higher input costs (such as raw materials and manufacturing expenses).

Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

Texas Instruments has been a well-oiled machine over the last two years. It demonstrated elite profitability for a semiconductor business, boasting an average operating margin of 35%. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Analyzing the trend in its profitability, Texas Instruments’s operating margin decreased by 13.5 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

This quarter, Texas Instruments generated an operating margin profit margin of 35.1%, down 2.4 percentage points year on year. Since Texas Instruments’s operating margin decreased more than its gross margin, we can assume it was less efficient because expenses such as marketing, R&D, and administrative overhead increased.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Texas Instruments’s flat EPS over the last five years was below its 4.7% annualized revenue growth. This tells us the company became less profitable on a per-share basis as it expanded due to non-fundamental factors such as interest expenses and taxes.

Diving into the nuances of Texas Instruments’s earnings can give us a better understanding of its performance. As we mentioned earlier, Texas Instruments’s operating margin declined by 13.5 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its lower earnings; interest expenses and taxes can also affect EPS but don’t tell us as much about a company’s fundamentals.

In Q3, Texas Instruments reported EPS of $1.48, up from $1.47 in the same quarter last year. This print was close to analysts’ estimates. Over the next 12 months, Wall Street expects Texas Instruments’s full-year EPS of $5.47 to grow 15.2%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Texas Instruments has shown weak cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 11%, subpar for a semiconductor business. The divergence from its good operating margin stems from its capital-intensive business model, which requires Texas Instruments to make large cash investments in working capital and capital expenditures.

Taking a step back, we can see that Texas Instruments’s margin dropped by 28.1 percentage points over the last five years. It may have ticked higher more recently, but shareholders are likely hoping for its margin to at least revert to its historical level. Almost any movement in the wrong direction is undesirable because of its relatively low cash conversion. If the longer-term trend returns, it could signal it’s becoming a more capital-intensive business.

Texas Instruments’s free cash flow clocked in at $1.07 billion in Q3, equivalent to a 22.5% margin. This result was good as its margin was 12.5 percentage points higher than in the same quarter last year, but we wouldn’t read too much into the short term because investment needs can be seasonal, causing temporary swings. Long-term trends trump fluctuations.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Although Texas Instruments hasn’t been the highest-quality company lately, it found a few growth initiatives in the past that worked out wonderfully. Its five-year average ROIC was 47%, splendid for a semiconductor business.

Texas Instruments reported $5.19 billion of cash and $14.05 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $7.88 billion of EBITDA over the last 12 months, we view Texas Instruments’s 1.1× net-debt-to-EBITDA ratio as safe. We also see its $250 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

It was great to see a material improvement in Texas Instruments’s inventory levels. We were also happy its revenue outperformed Wall Street’s estimates. On the other hand, both its revenue and EPS guidance for next quarter missed, and this outlook is weighing on shares. The stock traded down 5.8% to $170.58 immediately following the results.

Updated: December 4, 2025 at 9:25 PM EST

Are you wondering whether to buy Texas Instruments or pass? We urge investors to not only consider the latest earnings results but also longer-term business quality and valuation as well.

Texas Instruments isn’t a terrible business, but it isn’t one of our picks. Although its revenue growth was mediocre over the last five years and is expected to accelerate over the next 12 months, its cash profitability fell over the last five years. And while the company’s impressive operating margins show it has a highly efficient business model, the downside is its projected EPS for the next year is lacking.

Texas Instruments’s P/E ratio based on the next 12 months is 31.2x. This valuation multiple is fair, but we don’t have much faith in the company. We're pretty confident there are superior stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $188.92 on the company (compared to the current share price of $179.70).