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- TXN 3Q25 - Disappointing outlook. What's next? Bull case $245 Bear case $125
TXN 3Q25 - Disappointing outlook. What's next? Bull case $245 Bear case $125
Cheat Sheets
TEXAS INSTRUMENTS (TXN)
📊 Recovery Continues | EPS $1.48 (with $0.10 restructuring hit) | Revenue $4.70B (+7% seq, +14% YoY) | All Markets Growing | Industrial +25%, Enterprise +35%, Comms +45%, Auto Up 10% Seq
Gross Margin 57% (Down 50 bps seq, lower loadings) | Data Center $1.2B Run Rate (+50% YTD) | Customer Inventories Low, Depletion Behind Us | Q4 Guide: $4.22-4.58B Revenue, $1.13-1.39 EPS | Closing Last Two 150mm Fabs
💰 Market Cap: $165B | 🏢 34,000 Employees | 🌍 80,000+ Products Serving 100K+ Customers
👨💼 CEO Haviv Ilan | 🎯 19% Analog Market Share (World #1) | 🇺🇸 Dallas, TX
$165.59
📉 -$15.25 (-8.43%) Today
-23% YTD | Post-Q3 Earnings Sell-Off
Price Targets (12-18 Months)
Current Price: $165.59
$245.00
Bull Case (+48%)
2026 EPS: $7.50 | P/E: 33x
Recovery + Data Center Boom
🚀 Needs:
All end markets continue recovery trajectory seen in Q3 • Data center maintains 50%+ growth rate, reaching $2B+ annually • Industrial +25% YoY growth sustains into 2026 • Customer inventories remain low, no destocking headwinds • 300mm fabs ramp drives gross margin back to 60%+ • Automotive electrification accelerates • Enterprise systems +35% growth continues on AI infrastructure build-out • Communications equipment momentum (+45% YoY) sustains on optical/switching demand • Factory loadings return to normal levels by mid-2026
$210.00
Base Case (+27%)
2026 EPS: $6.50 | P/E: 32x
Moderate Recovery
⚖️ Needs:
Revenue grows to $18-19B in 2026 at current recovery pace • Data center reaches $1.5B run rate • Industrial maintains low-double-digit growth • Gross margins stabilize at 57-58% as loadings normalize • Customer inventories remain healthy and low • Sequential growth continues through 2026 • Factory loadings increase gradually from Q4 2025 lows • Free cash flow improves to $4-5B as capex moderates • CHIPS Act benefits continue ($637M received in Q3, $2.4B FCF TTM including incentives)
$125.00
Bear Case (-24%)
2026 EPS: $4.00 | P/E: 31x
Recovery Stalls
⚠️ Risk:
Recovery pace "slower than prior upturns" continues into 2026 • Macroeconomic uncertainty intensifies • Factory loadings stay depressed, gross margin stuck at 55-57% • Lower loadings hit again in Q1 2026 as seasonality compounds • Data center CapEx slows after buildout completes • Automotive demand weakens on EV slowdown • $4.8B inventory position becomes overhang if demand falters • Restructuring ($0.08 per share hit in Q3) signals more cost cuts needed • Free cash flow remains weak with continued high capex • Stock derated on slower growth than expected
The TL;DR
💰
What Happened
REVENUE: $4.70B (+7% seq, +14% YoY) came in as expected
EPS: $1.48 includes $0.10 restructuring charge ($0.08 for closing last two 150mm fabs)
ALL MARKETS UP: Industrial +25% YoY, Enterprise +35% YoY, Comms +45% YoY, Auto up 10% seq
DATA CENTER: $1.2B run rate, growing 50%+ YTD, fastest growing segment
INVENTORY: Customer inventories LOW, depletion behind us
Q4 GUIDE: $4.22-4.58B revenue, $1.13-1.39 EPS
EPS: $1.48 includes $0.10 restructuring charge ($0.08 for closing last two 150mm fabs)
ALL MARKETS UP: Industrial +25% YoY, Enterprise +35% YoY, Comms +45% YoY, Auto up 10% seq
DATA CENTER: $1.2B run rate, growing 50%+ YTD, fastest growing segment
INVENTORY: Customer inventories LOW, depletion behind us
Q4 GUIDE: $4.22-4.58B revenue, $1.13-1.39 EPS
📉
Why It Matters
"Slower Than Prior Upturns": Recovery continuing but management cautions pace slower due to macro uncertainty
Broad-Based Growth: ALL end markets growing YoY = not single-market dependent
Inventory Health: Customers at LOW levels, depletion phase OVER = sustainable demand
Margin Pressure: 57% GM (down 50 bps) due to LOWER LOADINGS to control inventory
Data Center Breakout: New segment in Q1 2026 = transparency on AI exposure
Broad-Based Growth: ALL end markets growing YoY = not single-market dependent
Inventory Health: Customers at LOW levels, depletion phase OVER = sustainable demand
Margin Pressure: 57% GM (down 50 bps) due to LOWER LOADINGS to control inventory
Data Center Breakout: New segment in Q1 2026 = transparency on AI exposure
🎯
Management Strategy
Inventory Discipline: $4.8B inventory flat-to-down, lowering loadings to avoid cash waste
Restructuring: Closing last two 150mm fabs for efficiency
Data Center Focus: Breaking out as separate segment in Q1 2026
Long-Term View: "Objective is long-term growth of free cash flow per share"
Tax Rate: New U.S. legislation = 13-14% effective rate in 2026
Restructuring: Closing last two 150mm fabs for efficiency
Data Center Focus: Breaking out as separate segment in Q1 2026
Long-Term View: "Objective is long-term growth of free cash flow per share"
Tax Rate: New U.S. legislation = 13-14% effective rate in 2026
⚡
Key Catalysts
Near-term: Q4 sequential growth would confirm recovery trajectory
Q1 2026: Data center segment breakout = visibility into AI exposure
Loadings: Factory utilization increase = gross margin expansion catalyst
Data Center CapEx: "Not seeing any slowdown...in foreseeable future"
FCF: $2.4B TTM including $637M CHIPS Act = improving trend
Q1 2026: Data center segment breakout = visibility into AI exposure
Loadings: Factory utilization increase = gross margin expansion catalyst
Data Center CapEx: "Not seeing any slowdown...in foreseeable future"
FCF: $2.4B TTM including $637M CHIPS Act = improving trend
🐂 Bull Thesis
📈
Recovery Confirmed - All Markets Growing
Broad-Based: Industrial +25%, Enterprise +35%, Comms +45%, Auto +10% seq, PE low-single digits = ALL markets UP
Sequential Growth: +7% Q/Q follows strong Q2, momentum building through year
Customer Inventories: "Low levels" and "depletion appears behind us" = sustainable demand ahead
Sequential Growth: +7% Q/Q follows strong Q2, momentum building through year
Customer Inventories: "Low levels" and "depletion appears behind us" = sustainable demand ahead
💰
Data Center Explosion - $1.2B Run Rate
Fastest Growing: 50%+ YTD growth in data center = AI infrastructure boom
Sustainable: "Customers continuing to invest...not seeing any slowdown in foreseeable future" - CEO
New Segment: Breaking out in Q1 2026 = $1.2B+ run rate gets visibility, currently hidden in Enterprise/Comms/Industrial
Sustainable: "Customers continuing to invest...not seeing any slowdown in foreseeable future" - CEO
New Segment: Breaking out in Q1 2026 = $1.2B+ run rate gets visibility, currently hidden in Enterprise/Comms/Industrial
🎬
Inventory Discipline = Quality Cash Flow
Smart Management: $4.8B inventory flat despite +7% revenue = not building ahead of demand
Low Obsolescence: "Hardly ever scrap inventory...lasts a long time" = efficient capital allocation
CHIPS Act Boost: $637M received in Q3, $75M in Q3 from direct funding = FCF support
Low Obsolescence: "Hardly ever scrap inventory...lasts a long time" = efficient capital allocation
CHIPS Act Boost: $637M received in Q3, $75M in Q3 from direct funding = FCF support
💪
Restructuring = Margin Upside Ahead
Efficiency Gains: Closing last two 150mm fabs = operational streamlining for long-term strategy
Loading Leverage: Current 57% GM with REDUCED loadings = significant upside when utilization normalizes
22 Years Dividends: Increased 4% in Sept, 22nd consecutive year = shareholder commitment through cycles
Loading Leverage: Current 57% GM with REDUCED loadings = significant upside when utilization normalizes
22 Years Dividends: Increased 4% in Sept, 22nd consecutive year = shareholder commitment through cycles
🐻 Bear Thesis
📉
"Slower Than Prior Upturns" - CEO Warning
Caution Flag: Management explicitly said recovery "at a slower pace than prior upturns"
Macro Uncertainty: "Related to broader macroeconomic dynamics and overall uncertainty"
Not Normal: If this is a weaker cycle, valuation should compress vs historical recoveries
Macro Uncertainty: "Related to broader macroeconomic dynamics and overall uncertainty"
Not Normal: If this is a weaker cycle, valuation should compress vs historical recoveries
💸
Lower Loadings = Margin Compression Ongoing
The Hit: Factory loadings reduced in Q3, FURTHER reductions in Q4 = gross margin pressure continues
57% and Falling: GM down 50 bps to 57%, below historical 60%+ range
Inventory Management: $4.8B inventory staying flat-to-down = can't grow into excess capacity
57% and Falling: GM down 50 bps to 57%, below historical 60%+ range
Inventory Management: $4.8B inventory staying flat-to-down = can't grow into excess capacity
🤖
Restructuring Charge = Things Worse Than Expected?
$0.10 Hit: EPS reduced by $0.10 (not in guidance), $0.08 for closing 150mm fabs
Signal: Why close fabs NOW if recovery is robust? Suggests capacity not needed near-term
FCF Weak: $2.4B TTM includes $637M CHIPS Act = only $1.8B organic FCF with $4.8B capex
Signal: Why close fabs NOW if recovery is robust? Suggests capacity not needed near-term
FCF Weak: $2.4B TTM includes $637M CHIPS Act = only $1.8B organic FCF with $4.8B capex
⏰
Q4 Guide Implies Sequential DECLINE
Midpoint Math: Q4 guide $4.40B midpoint vs Q3 $4.70B = -6% sequential
Seasonality?: Personal electronics "most sensitive to seasonality" but if all markets slowing?
Loading Spiral: Lower Q4 revenue → further loading cuts → more margin pressure → weak Q1 2026?
Seasonality?: Personal electronics "most sensitive to seasonality" but if all markets slowing?
Loading Spiral: Lower Q4 revenue → further loading cuts → more margin pressure → weak Q1 2026?
This analysis is for informational purposes only and should not be considered investment advice. Please consult with a financial advisor before making investment decisions.
