Texas Instruments: Still room to grow.

Texas Instruments is one of the world’s leading semiconductor companies and a dominant player in analog chips and embedded processing solutions. Known for its broad product portfolio, strong manufacturing capabilities, and deep relationships across industrial, automotive, and data center markets, the company combines durable competitive advantages with a disciplined long-term business model. With increasing exposure to structural growth trends such as automation, electrification, and AI-driven infrastructure, Texas Instruments aims to strengthen its market position while driving long-term free cash flow growth. The question remains: Does this semiconductor leader deserve a spot in your portfolio?

This is not a financial advice. I am not a financial advisor and I only do these post in order to do my own analysis and elaborate about my decisions, especially for my copiers and followers. If you consider investing in any of the ideas I present, you should do your own research or contact a professional financial advisor, as all investing comes with a risk of losing money. You are also more than welcome to copy me. 

For full disclosure, I should mention that I do not own any shares in Texas Instruments at the time of writing this analysis. If you would like to copy or view my portfolio, you can find instructions on how to do so here. If you want to purchase shares or fractional shares of Texas Instruments, you can do so through eToro. eToro is a highly user-friendly platform that allows you to get started on investing with as little as $50.

The Business

Texas Instruments was founded in 1951 and is headquartered in Dallas, Texas. The company is one of the world’s leading semiconductor businesses and specializes in analog integrated circuits and embedded processing products. Its semiconductors are used in virtually every type of electronic device, making Texas Instruments a foundational supplier to the modern economy. The company’s business is centered around helping electronic systems sense, control, power, and process information. Its Analog segment, which represents the majority of revenue, includes chips that manage power and translate real-world signals such as sound, temperature, pressure, light, and motion into data that can be processed by electronic systems. These products are essential in ensuring that devices operate reliably and efficiently. For example, analog chips help regulate battery power in electric vehicles, manage motor control in industrial machines, and enable sensors in medical equipment and data centers. The Embedded Processing segment acts as the digital “brain” of many electronic systems and includes microcontrollers, processors, wireless connectivity, and radar products. These chips perform dedicated tasks and bring intelligence to applications ranging from industrial automation and automotive safety systems to consumer electronics and robotics. A particularly important characteristic of this business is that many customers invest their own software development resources around Texas Instruments’ chips, which often leads to long customer relationships as that software is reused across multiple product generations. Texas Instruments sells more than 80.000 products to over 100.000 customers across highly diversified end markets, with industrial and automotive each accounting for roughly one-third of revenue, followed by data center, personal electronics, and communications equipment. This broad exposure reduces reliance on any single market, customer, or product cycle and gives the company resilience across different economic environments. The business model is also supported by a highly direct sales structure, where more than 80% of revenue is generated through direct customer relationships, including its own digital platform. This gives Texas Instruments close contact with customers, stronger visibility into demand trends, and the ability to capture more value than a distributor-led model. Texas Instruments’ competitive moat is built around four durable pillars: manufacturing and technology leadership, a broad and diversified product portfolio, strong reach through direct market channels, and diverse, long-lived customer and product positions. Together, these advantages reinforce one another and create a highly difficult-to-replicate business model. The first and perhaps most important advantage is its manufacturing and technology leadership. Unlike many semiconductor companies that outsource production, Texas Instruments produces most of its chips in its own factories. This gives the company a major advantage because it can manufacture chips at a lower cost while also maintaining greater control over quality and supply. A key reason for this cost advantage is that Texas Instruments uses larger and more efficient production facilities, which allow it to produce more chips at a lower cost per unit. Management has stated that chips produced in these newer facilities can cost around 40% less to make than in older ones. Because many of Texas Instruments’ chips remain in use for many years, this cost advantage can support profitability for a very long time. Owning its own manufacturing network also makes the company more dependable for customers, as it has greater control over production capacity and is less dependent on outside suppliers during periods of shortages or supply chain disruptions. The second moat pillar is its exceptionally broad product portfolio. With more than 80.000 products spanning power management, signal chain, microcontrollers, processors, connectivity, and specialized applications, Texas Instruments can often provide multiple components for a single customer design. This increases wallet share per project and strengthens customer stickiness because customers benefit from sourcing many parts from one trusted supplier. The third advantage is the reach of its market channels. Texas Instruments has invested heavily in direct customer relationships through both its global sales force and its own online platform. This direct access not only improves margins by reducing reliance on distributors but also gives the company valuable real-time insight into customer demand, new product designs, and inventory needs. This visibility helps Texas Instruments plan production more efficiently and keep delivery times short, meaning customers can receive chips faster and more reliably than from many competitors. The fourth moat pillar is the diversity and longevity of its product positions. Many of the company’s analog and embedded chips remain in use for more than a decade, and in many cases much longer. Once a chip is designed into a product such as an industrial machine, vehicle system, or medical device, switching costs can become meaningful because redesigning the system requires engineering resources, validation, and often regulatory approvals. This creates long-lived recurring revenue streams and allows research and development investments to generate returns for decades. When these four advantages are combined, they create a flywheel effect where lower manufacturing costs support competitive pricing and high margins, the broad portfolio deepens customer relationships, direct channels improve demand visibility, and long product lifecycles extend returns on capital.

Management

Haviv Ilan serves as the CEO of Texas Instruments, a role he assumed on April 1, 2023, after more than two decades with the company. He brings extensive experience in the semiconductor industry and has held a wide range of leadership positions since joining Texas Instruments in 1999. His appointment reflects Texas Instruments’ long-standing focus on internal leadership development, operational excellence, and long-term strategic continuity. Before becoming CEO, Haviv Ilan most recently served as COO, where he played a central role in overseeing the company’s day-to-day operations, long-term manufacturing strategy, and capital allocation priorities. In this role, Haviv Ilan was deeply involved in strengthening Texas Instruments’ competitive advantages, particularly its manufacturing footprint, supply chain resilience, and expansion of internal production capacity. He was instrumental in helping execute the company’s long-term investment cycle in new fabrication facilities, which is a key part of Texas Instruments’ structural cost advantage and future growth ambitions. Prior to serving as COO, Haviv Ilan held several senior leadership positions across product lines, sales operations, and business management. Over his more than 24-year tenure at Texas Instruments, he has developed a deep understanding of the company’s products, customer relationships, and end markets, particularly across industrial and automotive applications. This breadth of experience gives him strong insight into both the technical and commercial sides of the business. Before joining Texas Instruments, Haviv Ilan worked at Butterfly, a wireless startup in Israel that was later acquired by Texas Instruments, which marked the beginning of his long career with the company. Haviv Ilan holds both bachelor’s and master’s degrees in electrical engineering from Tel Aviv University, as well as an MBA from Northwestern University Kellogg School of Management. This combination of technical expertise and business education is particularly relevant in a company like Texas Instruments, where leadership requires a strong understanding of semiconductor technology, manufacturing economics, and disciplined capital allocation. A point that strengthens confidence in Haviv Ilan’s leadership is the nature of the succession itself. He was handpicked by his predecessor, Rich Templeton, one of the most respected leaders in the semiconductor industry and a key architect of Texas Instruments’ long-term strategy. The leadership transition appears to have been both thoughtful and strategic, with Haviv Ilan taking over as CEO in 2023 before also becoming chairman in 2026. This gradual transition suggests that the company prioritized continuity and long-term execution rather than abrupt strategic change. Having now led Texas Instruments for several years, Haviv Ilan has already had time to demonstrate his leadership and strategic priorities. His long tenure within the company and deep involvement in its operations before becoming CEO provide a solid foundation. In many ways, Haviv Ilan represents continuity rather than reinvention, which is often a positive quality for a business built on durable competitive advantages, disciplined capital allocation, and decades-long product cycles.

The Numbers

The first number we will look into is the return on invested capital, also known as ROIC. We want to see a 10-year history, with all numbers exceeding 10% in each year. exas Instruments has historically generated exceptionally high ROIC, which is exactly what you would expect from a business with a strong competitive moat, high margins, and long product life cycles. Over the past decade, ROIC has remained above 10% every single year and was above 30% in most of the years from 2016 through 2022, peaking above 40% in both 2018 and 2021. That is an outstanding record and clearly signals that Texas Instruments has been one of the highest-quality compounders in the semiconductor industry. The decline over the past three years from 40,8% in 2022 to 24,8% in 2023, 15,7% in 2024, and 17,9% in 2025 is notable, but I do not believe it reflects any structural deterioration in the business. In my view, there are two primary reasons for the decline. First, Texas Instruments has been in the middle of an unusually large investment cycle. Management has spent heavily on new manufacturing capacity, particularly its newer production facilities in Richardson, Lehi, and Sherman. These investments have significantly increased the amount of capital tied up in the business before the financial benefits are fully reflected in earnings. In simple terms, Texas Instruments has invested billions of dollars into future growth, while the returns from these investments will come later as production ramps up and customer demand improves. Second, the company has also been operating through a cyclical slowdown in parts of the semiconductor market, especially in industrial and automotive markets after a period of inventory normalization. This has temporarily pressured profits at the same time as the company has increased its capital base, which naturally pushes ROIC lower. This combination of temporarily weaker earnings and much higher investments explains most of the decline. Importantly, this is very different from a situation where ROIC falls because the moat is weakening. In Texas Instruments’ case, the moat may actually be strengthening because these investments are designed to expand its cost advantage and supply chain control. I actually find it encouraging that ROIC remained close to 18% in 2025 despite this elevated investment cycle. That is still a very strong level for a manufacturing-heavy business and remains comfortably above what most industrial companies achieve. It also shows that capital efficiency remains strong even during this heavy investment phase. Looking ahead, I would expect ROIC to improve over the next few years. The most important reason is that capital expenditures are now beginning to normalize after peaking. As this happens, investments should grow more slowly, while revenue and operating profit should benefit from a broader recovery in industrial and automotive demand as well as increasing utilization of the new facilities. That combination should be very supportive for ROIC expansion. I do not necessarily expect Texas Instruments to return to the extraordinary 40% plus ROIC levels seen earlier in the decade in the near term, because the company now has a much larger manufacturing footprint and intentionally carries more inventory to provide better customer service. However, I do believe ROIC can gradually move back into the 20% to 30% range over time as utilization rises and the benefits of the lower-cost production facilities become more visible in earnings. In that sense, the recent decline looks more like a temporary consequence of long-term value-creating investments rather than a warning sign. For a long-term investor, I would actually view this period as an example of management sacrificing short-term returns in order to strengthen Texas Instruments’ moat and future free cash flow generation.

The next numbers are the book value + dividend. In my old format this was known as the equity growth rate. It was the most important of the four growth rates I used to use in my analyses, which is why I will continue to use it moving forward. As you are used to see the numbers in percentage, I have decided to share both the numbers and the percentage growth year over year. To put it simply, equity is the part of the company that belongs to its shareholders – like the portion of a house you truly own after paying off part of the mortgage. Growing equity over time means the company is becoming more valuable for its owners. So, when we track book value plus dividends, we’re essentially looking at how much value is being built for shareholders year after year. Texas Instruments’ equity development has not been a straight line, and that is important to understand in the context of how management allocates capital. From 2016 through 2019, equity declined gradually from 10.473 to 8.907, with negative growth in three consecutive years. This does not necessarily indicate a weaker business. In Texas Instruments’ case, it largely reflects the company’s aggressive capital return strategy and the fact that management has historically used large amounts of free cash flow for share repurchases. When a company buys back its own shares, equity on the balance sheet is reduced, even if the underlying business continues to perform strongly. From 2020 onward, the picture improved significantly. Equity increased from 9.187 in 2020 to 16.897 in 2023, including an especially strong increase of 45.1% in 2021. This period reflects very strong profitability combined with continued disciplined capital allocation. Texas Instruments benefited from strong demand across several end markets, particularly industrial and automotive, while maintaining high margins and excellent returns on capital. This allowed the company to grow shareholder value meaningfully even while continuing to invest heavily in the business. The slight decline in 2024 and 2025, where equity moved from 16.903 to 16.273, does not concern me. In my view, this is largely explained by the company’s elevated investment cycle and continued capital returns. Texas Instruments has been investing heavily in new manufacturing facilities, which strengthens its competitive moat but can temporarily weigh on equity growth in the short term. At the same time, the company continues to allocate capital in a shareholder-friendly way, which can also reduce book value even when the business itself remains strong. Importantly, equity should not be viewed in isolation. Texas Instruments continues to generate strong profitability and attractive ROIC, even during this investment-heavy period. Because this is a business with high returns on capital, management does not need to retain large amounts of equity to create value. In many ways, the fluctuations we see are more a reflection of capital allocation decisions than of business quality. Looking ahead, I expect equity to grow over time, although it may continue to fluctuate from year to year. As the current investment cycle begins to normalize and the newer production facilities start contributing more meaningfully to earnings, profitability should increasingly support equity growth. Therefore, while the recent decline may look disappointing at first glance, I view it as temporary and largely driven by long-term value-creating investments rather than any deterioration in the business.

Finally, we will analyze the free cash flow. Free cash flow, in short, refers to the cash that a company generates after covering its operating expenses and capital expenditures. I use levered free cash flow margin because I believe that margins offer a better understanding of the numbers. Free cash flow yield refers to the amount of free cash flow per share that a company is expected to generate in relation to its market value per share. Texas Instruments has historically generated strong free cash flow and high free cash flow margins, and this is largely a result of the strength of its business model. One of the main reasons is the company’s high profitability. Texas Instruments operates in analog and embedded semiconductors, where products often have long life cycles, strong pricing power, and attractive gross margins. Many of its chips remain in production for many years and continue generating revenue long after the initial research and development investment has been made. This allows a significant portion of revenue to convert into cash over time. Another important reason for the strong free cash flow profile is the company’s operating efficiency. Texas Instruments has built a business model around scale, manufacturing advantages, and disciplined capital allocation. Its broad product portfolio and long-lived customer relationships create stable demand across industrial, automotive, and other end markets. In addition, because many of its products are reused across multiple product generations, the returns on past research and development investments can last for many years. This supports consistently strong cash generation and historically high free cash flow margins, which often exceeded 30% from 2016 through 2022. The decline in free cash flow over the past three years is primarily explained by the company’s elevated capital expenditure cycle rather than any deterioration in the underlying business. Free cash flow fell from 5.923 in 2022 to 1.349 in 2023 and remained low at 1.498 in 2024 before recovering to 2.603 in 2025. At the same time, free cash flow margin declined from 29,6% in 2022 to 7,7% in 2023 and 9,6% in 2024 before improving to 14,7% in 2025. The key reason for this is that Texas Instruments has been investing heavily in expanding its manufacturing capacity, particularly its newer and more efficient production facilities. Capital expenditures reached 4.6 billion in 2025 as the company continued to build out its low-cost manufacturing advantage. While this temporarily reduces free cash flow, these investments are intended to strengthen the company’s moat and support future growth. I actually find it encouraging that free cash flow almost doubled in 2025 compared to 2024. This improvement suggests that the business is already beginning to benefit from recovering end-market demand while nearing the end of its six-year elevated investment cycle. Management has indicated that capital expenditures are expected to decline significantly in 2026 to a range of 2 billion to 3 billion. This is an important point because lower capital expenditures alone should materially improve free cash flow, even before taking further revenue growth into account. Looking ahead, I expect free cash flow and free cash flow margin to improve meaningfully over the next few years. As capital expenditures normalize and the new manufacturing facilities begin contributing more meaningfully to revenue and profitability, a larger share of operating cash flow should once again flow through as free cash flow. Given the company’s strong operating cash generation and the fact that the heavy investment cycle is nearing completion, I would not be surprised to see free cash flow margins gradually move back toward the 20% to 30% range over time. Texas Instruments uses its free cash flow in a highly disciplined way. First, a significant portion is reinvested into the business through research and development, manufacturing capacity, and inventory to strengthen its competitive advantages. Second, the remaining cash is returned to shareholders over time through dividends and share repurchases. Management has long emphasized that the growth of free cash flow per share is the primary driver of long-term value creation. In 2025 alone, the company returned 6,5 billion to shareholders through dividends and share buybacks. Texas Instruments has also increased its dividend for 22 consecutive years and has reduced shares outstanding significantly over the long term through repurchases. This shareholder-friendly capital allocation, combined with a strong business model, is one of the reasons I find the company particularly attractive as a long-term investment. The free cash flow yield suggests that the shares are trading at a premium valuation. However, the low free cash flow yield is partly due to elevated capital expenditures. We will revisit valuation later in the analysis.

Debt

Another important aspect to consider is the level of debt. It is crucial to determine whether a business carries manageable debt, specifically whether it could be repaid within a period of three years. To assess this, I divide total long-term debt by earnings. For Texas Instruments, this calculation results in a debt-to-earnings ratio of 2,74 years. Since this is below my three-year threshold, debt is not a concern for me. It is also worth noting that Texas Instruments has consistently maintained a debt-to-earnings ratio below 3 over the past decade, which demonstrates prudent financial management and a disciplined approach to debt. Another reassuring factor is that the company has $4,9 billion in cash and short-term investments compared to total debt of $14 billion. This gives Texas Instruments solid financial flexibility and makes me even less concerned about its debt level. I also think it is important to remember that current earnings are being affected by the company’s unusually high investment cycle. Texas Instruments has spent heavily in recent years on expanding its manufacturing capacity, which has temporarily weighed on profitability and earnings per share. This means that the debt-to-earnings ratio may currently look somewhat higher than what the long-term earning power of the business would suggest. As these investments begin to contribute more meaningfully to revenue and profits, the debt ratio should naturally improve. Management has also emphasized the importance of maintaining a healthy cash balance while carefully managing debt levels, which I believe positions the company well for sustainable long-term growth. Based on both the historical track record and the company’s current approach, I do not expect debt to become a concern in the future.

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Risks

Competition is a risk for Texas Instruments because the semiconductor industry is highly competitive and global, with many companies competing across analog and embedded processing markets. Although Texas Instruments benefits from scale, strong customer relationships, and a broad product portfolio, it still operates in an industry where customers often have multiple supplier options. The company competes with large diversified semiconductor companies, specialized analog chipmakers, and smaller niche suppliers that focus on specific end markets or product categories. This means Texas Instruments must continuously defend its market position through product quality, pricing, customer support, and technological development. One important competitive risk comes from pricing pressure. In periods where demand slows, competitors often become more aggressive in trying to win market share. This can lead to lower prices across parts of the industry. Because many analog and embedded chips are sold into large industrial and automotive programs, even small pricing changes can have a meaningful impact on margins. If competitors are willing to accept lower margins to win business, Texas Instruments may face pressure to reduce prices in order to protect its customer relationships and design wins. This could affect profitability even if revenue remains stable. Another risk is the pace of product development and innovation. Customers in markets such as automotive, industrial automation, and data centers continuously require better performance, lower power consumption, and improved functionality. If competitors are faster in developing new products or offer better solutions for emerging applications, Texas Instruments could lose future design wins. This is especially important because once a competitor’s chip is designed into a product, that relationship can often last for many years. A growing competitive risk also comes from China’s push to build a self-sufficient semiconductor industry. Chinese companies are receiving significant support through subsidies, policy initiatives, and targeted investments. This is making local suppliers increasingly credible alternatives, particularly for Chinese customers who may prefer domestic partners. Over time, this could make it harder for Texas Instruments to maintain or grow market share in one of the world’s most important semiconductor markets. This is particularly relevant because industrial and automotive customers in China are becoming increasingly open to sourcing from local suppliers. Competition can also increase through consolidation in the industry. If competitors merge or acquire complementary businesses, they may become larger and better resourced. This could strengthen their research and development capabilities, expand their product portfolios, and improve their ability to compete on both price and customer support. In an industry where breadth of products and scale matter, larger competitors can become more formidable over time.

Macroeconomic factors is a risk for Texas Instruments because the semiconductor industry is inherently cyclical and closely linked to global economic activity. Even though Texas Instruments benefits from a broad product portfolio and exposure to several end markets, demand for its chips is still heavily influenced by the overall health of the global economy. When economic growth slows, companies often delay investments, reduce production, and work down existing inventory instead of placing new orders. This can directly affect Texas Instruments’ revenue, margins, and cash flow. One of the most important macroeconomic risks is the cyclical nature of industrial activity. A large portion of Texas Instruments’ revenue comes from industrial customers, including factory automation, robotics, energy infrastructure, building systems, and medical equipment. These are areas where demand is closely tied to business confidence and capital spending. During periods of economic uncertainty or weaker manufacturing activity, customers may postpone equipment upgrades or expansion projects. This can lead to lower chip demand and weaker financial performance for Texas Instruments. The automotive market is another important source of macroeconomic risk. Automotive has been one of Texas Instruments’ strongest growth areas, driven by increasing semiconductor content per vehicle. However, global vehicle sales volumes can still be cyclical and sensitive to consumer confidence, interest rates, and economic growth. If car sales slow or if automakers reduce production due to weaker demand, Texas Instruments could see a decline in orders. There is also a risk that customers overcorrect inventory levels after a period of strong demand, which can temporarily amplify downturns. Another risk comes from the capital-intensive nature of semiconductor manufacturing. Texas Instruments invests heavily in production capacity, and these facilities require large upfront spending. During economic upturns, this can be highly beneficial because strong demand supports high factory utilization and strong margins. However, in downturns, weaker demand can leave factories running below capacity, which puts pressure on profitability. Because many of the company’s costs are fixed, lower utilization can have a meaningful impact on margins and free cash flow. Texas Instruments is also exposed to global trade conditions and geopolitical risks, which are closely tied to macroeconomic developments. A significant portion of the company’s revenue is linked to customers outside the United States, with China being particularly important. Any slowdown in global trade, rising tariffs, or geopolitical tensions between major economies such as the United States and China could negatively affect customer demand and the company’s ability to deliver products efficiently. This is particularly relevant in the semiconductor industry, where supply chains are global and highly interconnected.

Laws and regulations is a risk for Texas Instruments because the company operates in a highly regulated global industry and is subject to a wide range of rules across more than 30 countries. As a semiconductor company with manufacturing, research, and sales operations spread across multiple regions, Texas Instruments must comply with laws related to trade, exports, environmental standards, labor, data protection, intellectual property, taxation, and product safety. The challenge is not only the number of rules the company must follow, but also that these regulations can change quickly and sometimes with little warning. One of the most important regulatory risks comes from export controls and trade restrictions. Semiconductors have become strategically important products, and governments increasingly view them as part of national security policy. This is especially relevant given the tensions between the United States and China. If the U.S. government introduces new export controls on certain chips or technologies, Texas Instruments could be restricted from selling products to specific customers or countries. This could lead to an immediate loss of revenue and potentially force the company to redirect products to other markets. China is particularly important in this context. A significant share of Texas Instruments’ revenue is linked to products shipped into China. If Chinese authorities respond with their own restrictions, procurement preferences for domestic suppliers, or regulatory barriers against U.S. companies, Texas Instruments could face reduced market access in one of the world’s largest semiconductor markets. Even if products are not directly banned, customers may increasingly favor local suppliers due to regulatory uncertainty. Another important risk relates to environmental and manufacturing regulations. Semiconductor production is complex and resource-intensive, requiring large amounts of electricity, water, chemicals, and specialized gases. New environmental laws or climate-related reporting requirements could increase costs, particularly for manufacturing facilities. For example, stricter rules on emissions, energy use, or waste management could require Texas Instruments to invest in additional equipment or modify production processes. While the company has the scale to adapt, these requirements can still weigh on margins and cash flow. There is also the risk of fines, legal disputes, or operational disruptions if regulators believe the company has not met required standards. In a global business of this size, even minor compliance issues in one jurisdiction can lead to investigations, reputational damage, or financial penalties.

Reasons to invest

Exposure to growth markets is a reason to invest in Texas Instruments because the company is increasingly focused on end markets that benefit from long-term structural trends such as automation, electrification, and the rapid expansion of data centers. Over time, Texas Instruments has shifted its business toward industrial, automotive, and data center markets, which together now represent around 75% of revenue, up from about 43% a decade ago. These markets are not only large but also expected to grow over many years, providing a strong foundation for long-term revenue and cash flow growth. One of the most important growth drivers is the industrial market. This includes areas such as factory automation, robotics, energy infrastructure, building systems, and medical equipment. Across these sectors, there is a clear trend toward increased automation, more sensing, and higher energy efficiency. All of these trends require more semiconductors, particularly analog and embedded chips. For example, as factories become more automated, they rely on more sensors, motor control systems, and power management solutions, all of which are areas where Texas Instruments has a strong position. Another important aspect is that industrial products often have very long life cycles, which means that once Texas Instruments’ chips are designed into a system, they can generate revenue for many years. The automotive market is another key growth driver. Modern vehicles are becoming increasingly electronic, with more features related to safety, infotainment, connectivity, and power management. This applies not only to electric vehicles but also to traditional combustion engine cars. Each new generation of vehicles tends to include more semiconductor content than the previous one, which creates a steady increase in demand over time. Texas Instruments is well positioned to benefit from this trend because its products are used across a wide range of automotive systems, including battery management, sensors, lighting, and advanced driver assistance systems. This steady increase in chip content per vehicle provides a strong long-term tailwind. The data center market is a newer but rapidly growing opportunity for Texas Instruments. Growth in cloud computing, artificial intelligence, and digital infrastructure is driving significant investment in data centers. While much of the attention is on high-performance processors, data centers also require a large number of analog and embedded chips to manage power, control signals, and ensure reliable operation. Texas Instruments supplies components across the entire system, from high-voltage power conversion down to the chips that regulate power at the processor level. As data centers become more powerful and energy-intensive, the need for efficient power management increases, which plays directly into Texas Instruments’ strengths. Management has highlighted that this market is growing rapidly and is becoming an increasingly meaningful part of the business.

Expanding capacity is a reason to invest in Texas Instruments because the company is making long-term investments that should strengthen its competitive moat, improve cost efficiency, and support future growth. Texas Instruments is one of the few companies in the analog semiconductor industry that is investing aggressively in its own manufacturing infrastructure, particularly in 300-millimeter wafer fabs. This is important because it not only increases the company’s ability to meet growing customer demand but also gives it a structural cost advantage over competitors that rely more heavily on external foundries. One of the biggest benefits of expanding capacity is lower production costs. Texas Instruments’ newer 300-millimeter facilities are significantly more efficient than older manufacturing lines. Larger wafers allow the company to produce more chips at a lower cost per unit, which should support stronger margins over time. This is particularly attractive in analog semiconductors, where products often remain in production for many years. Once the facilities are fully utilized, these lower costs can continue to benefit profitability and free cash flow for a very long time. Another important reason this expansion is attractive is that it gives Texas Instruments greater control over its supply chain. By producing more of its chips internally, the company becomes less dependent on third-party suppliers and external foundries. This improves reliability for customers and allows Texas Instruments to respond faster when demand changes. In an industry where customers highly value stable delivery and short delivery times, this can strengthen customer relationships and support market share gains. I also like that management has approached this expansion with a long-term and disciplined mindset. Rather than reacting only when demand spikes, the company has built a multi-phase roadmap that extends through the end of the decade. This means that future expansion can be done in a more modular and cost-efficient way, reducing the risk of rushed investments later. Management has also highlighted that some of the newest facilities are ramping ahead of schedule and with better-than-expected efficiency, which is an encouraging sign. While these investments have temporarily weighed on free cash flow in recent years, I view this as a short-term sacrifice for long-term value creation. As capital expenditures begin to normalize and the newer facilities ramp according to demand, the benefits should increasingly show up in margins, free cash flow, and returns on capital.

The product portfolio is a reason to invest in Texas Instruments because the company has built one of the broadest and most durable product offerings in the semiconductor industry. Texas Instruments offers a wide range of analog and embedded processing products, spanning both general-purpose chips and application-specific solutions. This breadth is important because it allows the company to serve a large number of customers across many industries, while also increasing the amount of content it can provide within each customer design. One of the biggest strengths of the portfolio is its diversity. Texas Instruments sells products across power management, signal chain, microcontrollers, processors, wireless connectivity, and specialized embedded solutions. This means the company is not dependent on one single product category or end market. Instead, it can participate in multiple parts of a customer’s system. For example, a customer may begin with an embedded processor at the center of the design and then use Texas Instruments chips for power management, sensing, connectivity, and signal processing around it. This increases customer stickiness and creates more opportunities to grow revenue per customer. I also like that the company continues to strengthen the portfolio through internal development and disciplined acquisitions. Texas Instruments invests heavily in research and development to expand its product range and improve its technology offering. Management has noted that the number of new embedded processing products being released each year is now several times higher than it was six years ago. This shows that the company is actively building future growth opportunities rather than simply relying on its legacy products. Another reason the product portfolio is attractive is the combination of hardware and supporting software solutions. Customers increasingly value complete solutions rather than just standalone chips. Texas Instruments has been expanding its offering to include software tools, application code, modules, and even boards that help customers speed up product development. This can make Texas Instruments a more valuable partner and improve the likelihood that customers continue using its products in future designs. The broad product portfolio also supports the company’s moat. With thousands of products serving many different customer needs, Texas Instruments can build long-term relationships and generate recurring revenue from designs that often remain in production for many years. Once a customer has built a system around Texas Instruments components and software tools, switching becomes less attractive.

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Valuation

Now it is time to calculate the share price. I perform three different calculations that I learned at a Phil Town seminar. If you want to make the calculations yourself for this or other stocks, you can do so through the tools page on my website, where you have access to all three calculators for free.

The first is called the Margin of Safety price, which is calculated based on earnings per share (EPS), estimated future EPS growth, and estimated future price-to-earnings ratio (P/E). The minimum acceptable rate of return is 15%. I chose to use an EPS of 5,45, which is from the year 2025. I have selected a projected future EPS growth rate of 15%. Finbox expects EPS to grow by 17,2% in the next five years, but 15% is the highest number I use. Additionally, I have selected a projected future P/E ratio of 30, which is double the growth rate. This decision is based on Texas Instruments' historically higher price-to-earnings (P/E) ratio. Finally, our minimum acceptable rate of return has already been established at 15%. After performing the calculations, we determined the sticker price (also known as fair value or intrinsic value) to be $163,50 We want to have a margin of safety of 50%, so we will divide it by 2. This means that we want to buy Texas Instruments at a price of $81,75 (or lower, obviously) if we use the Margin of Safety price.

The second calculation is known as the Ten Cap price. The rate of return that a company owner (or stockholder) receives on the purchase price of the company essentially represents its return on investment. The minimum annual return should be at least 10%, which I calculate as follows: The operating cash flow last year was 7.153, and capital expenditures were 4.550. However, management has stated that maintenance capital expenditures are 4% of revenue. This means that we will use 707 in our calculations. The tax provision was 709. We have 908,6 outstanding shares. Hence, the calculation will be as follows: (7.153 – 707 + 709) / 908,6 x 10 = $78,74 in Ten Cap price.

The final calculation is referred to as the Payback Time price. It is a calculation based on the free cash flow per share. With Texas Instruments' free cash flow per share at $2,86 and a growth rate of 15%, if you want to recoup your investment in 8 years, the Payback Time price is $45,15.

Conclusion

I believe that Texas Instruments is a great company with strong management. The company has built its competitive moat through its manufacturing and technology leadership, a broad and diversified product portfolio, strong reach through direct market channels, and diverse, long-lived customer and product positions. Together, these advantages reinforce one another and create a highly difficult-to-replicate business model. The company has consistently achieved a high ROIC and strong free cash flow generation. However, both ROIC and free cash flow have been affected by the elevated investment phase over the past three years and are expected to improve moving forward as capital expenditures normalize and the new facilities ramp according to demand. Competition is a risk for Texas Instruments because it operates in a highly competitive global semiconductor industry where customers often have multiple supplier options. Pricing pressure, faster innovation from rivals, and the rise of increasingly capable domestic competitors in China could pressure margins and make it harder for Texas Instruments to maintain market share and win future design opportunities. Macroeconomic factors are also a risk because demand for its chips is closely tied to global economic activity, particularly industrial production, automotive demand, and business investment. During economic slowdowns, customers often reduce orders and work down inventory, which can pressure revenue, margins, and free cash flow, especially given the company’s high fixed manufacturing costs. Laws and regulations are another risk because Texas Instruments operates across more than 30 countries and must comply with complex and constantly evolving rules related to trade, exports, environmental standards, and manufacturing. Changes in export controls, especially between the United States and China, as well as stricter environmental requirements, could increase costs, limit market access, and pressure revenue and margins. Exposure to growth markets is a reason to invest in Texas Instruments because around 75% of its revenue now comes from industrial, automotive, and data center markets that benefit from long-term trends such as automation, electrification, and AI-driven infrastructure growth. These markets are expected to expand over many years and should support continued revenue growth and strong cash flow generation as semiconductor content per application keeps increasing. Expanding capacity is also a reason to invest because its long-term investments in new 300-millimeter manufacturing facilities should strengthen its cost advantage, improve supply chain control, and support future growth. While these investments have temporarily pressured free cash flow, they should lead to higher margins and stronger cash generation over time as the new facilities ramp and capital expenditures normalize. The product portfolio is another reason to invest because its broad range of analog and embedded chips allows the company to serve many industries and capture more content within each customer design. This breadth, combined with continued investment in new products, software tools, and complete solutions, strengthens customer relationships, supports recurring revenue, and reinforces the company’s competitive moat over time. Overall, I believe that Texas Instruments is a great company, and buying shares at $126, which would provide a 20% discount to the intrinsic value based on the Ten Cap price, would represent an attractive long-term investment.

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