To The Moon

🎯 Executive Summary

I’m extremely confident Texas Instruments has structurally turned the corner, marking a credible end to the semiconductor down-cycle. Despite a Q4 double miss (EPS $1.27 vs $1.28 est, Revenue $4.42B vs $4.44B est), $TXN ripped ~+8% on the session, filled a prior July gap, hit 7-month highs, and validated demand recovery with a bullish Q1 revenue guide of $4.32B–$4.68B, midpoint $4.50B vs $4.42B consensus, and EPS up to $1.48 vs $1.26 expected. The most dominant signal is Free Cash Flow TTM surging +96% YoY to $2.94B, confirming TI’s multi-year 300mm fab build-out is transitioning from cash sink to cash engine. This is not just an AI narrative, it is a real-economy semiconductor recovery, backed by industrial, automotive, and data center acceleration, strong institutional flow, and bullish derivatives positioning.

🐂 Bull Case

• Free Cash Flow Inflection: FCF TTM $2.94B, +96% YoY, driven by stabilising capex, easing working capital drag, and 300mm efficiency gains

• Analog Segment Dominance: Analog revenue $3.62B, +14% YoY, ~82% of total revenue, operating profit +13% YoY

• End-Market Recovery Confirmation: Industrial revenue high-teens YoY in Q4, automotive upper single digits YoY, back to 2023 peaks with rising chip content per vehicle, data center revenue ~70% YoY in Q4, marking seven consecutive quarters of expansion to ~$450M quarterly run-rate

• Structural Revenue Upgrade: Industrial, automotive, and data center now represent ~75% of FY2025 revenue, up from 43% in 2013, confirming long-term diversification into higher-value secular growth markets

• Sequential Growth Breakout: Q1 midpoint $4.50B implies +1.8% QoQ, marking the first sequentially higher Q1 in over a decade, supported by backlog build and order momentum

• Capital Cycle Turn: 2026 Capex guided $2B–$3B, sharply down from $4.6B in FY2025, signalling peak investment pressure has passed

• CHIPS Act Tailwind: $335M TTM Investment Tax Credit, cushioning fab expansion costs

• Inventory As Strategic Asset: Inventory $4.8B, management views this as a high-quality buffer supporting turns business and rapid demand fulfilment, not excess supply risk

• Shareholder Returns: $6.5B returned TTM, including $1.48B buybacks (+59% YoY)

🐻 Bear Case

• Q4 Double Miss: EPS $1.27 vs $1.28 est, Revenue $4.42B vs $4.44B est

• Negative Operating Leverage: Revenue +10% YoY, but Cost of Revenue +15%, compressing margin structure

• Gross Margin Compression: ~55.9% vs 57.8% YoY, nearly 200bps contraction

• Net Income Decline: Net income -3% YoY, EPS -2% YoY

• Embedded Processing Margin Pressure: Embedded revenue +8% YoY, but Q4 operating profit fell sequentially to ~$71M, margin ~10.7%. Full-year embedded operating profit -14% YoY, despite Q4 +22% YoY, suggesting stabilisation but ongoing drag

• Pricing Headwinds: Pricing expected to decline low single digits again in 2026, similar to ~2–3% in 2025

• Depreciation Drag: 300mm fab depreciation remains an earnings headwind, peaking in 2026 before easing into 2027

💰 Financial Performance Breakdown

• Q4 Revenue: $4.42B, +10% YoY

• FY2025 Revenue: $17.68B, +13% YoY

• Q4 EPS (GAAP): $1.27 vs $1.28 est, -2% YoY

• Q1 EPS Guidance: $1.22–$1.48, midpoint $1.35, +5.5% YoY

• Net Income: -3% YoY

• Gross Margin: ~55.9% vs 57.8% YoY

• Operating Expenses: $967M, +3% YoY

• Free Cash Flow (TTM): $2.94B, +96% YoY

• Operating Cash Flow: $7.15B, +13% YoY

• Capex (TTM): $4.55B vs $4.82B YoY, trending lower into 2026

• Inventory: $4.80B, 222 days, +7% QoQ

• Segment Revenue YoY: Analog +14%, Embedded +8%, Other -~33%

🛠️ Strategic Headwinds and Execution Risk

Margin compression remains the primary friction point due to factory under-loading and elevated depreciation, quantified by management as a ~$0.06 EPS hit in Q4. Embedded Processing profitability remains pressured, but YoY improvement signals stabilisation. Pricing softness persists into 2026, but demand momentum and backlog strength reduce downside risk. The primary execution lever is capacity utilisation normalisation, which unlocks operating leverage as capex intensity falls and demand continues to recover.

🧠 Analyst and Institutional Sentiment

• UBS: Buy, PT $260

• Benchmark: Buy, PT $250

• KeyBanc: Overweight, PT $240

• Rosenblatt: PT $240

• BofA: Upgraded to Neutral, PT $235

• JPMorgan: Overweight, PT $227

• Cantor Fitzgerald: Neutral, PT $225

• Bernstein: Market Perform, PT $205

• Morgan Stanley: Underweight, PT $180

• Goldman Sachs: Sell, PT $175

• Mizuho: Underperform, PT $160

PT Range: ~$160 to $260

Sentiment: Improving but split

Options Flow: ~34K calls vs 19K puts, heavy activity in Feb 220C and weekly 220C

Volatility Signal: SVS 98, realised volatility exceeding implied

Dealer Positioning: Call-skew suggests positive gamma above $210, increasing probability of upside pinning and trend continuation

📉📈 Technical Setup After Earnings

Price has broken multi-month resistance, filled a July gap, and confirmed a bullish regime shift.

• Resistance: $220 to $225, then $235 to $250

• Support: $200, then $190 to $195

• RSI: Elevated, approaching overbought

• MACD: Bullish crossover expanding

• EMA Structure: Price stacked above short, medium, and long-term EMAs

• Keltner and Bollinger Bands: Upper-band expansion confirming trend acceleration

• Liquidity Pockets: Thin liquidity above $220 creates air-pocket upside toward $235

Base Target: $225

Stretch Target: $240 to $260

Failure Level: Sustained break below $190

🌍 Macro and Peer Context

Texas Instruments strengthens the thesis that the semiconductor cycle is recovering beyond AI GPUs, led by industrial automation, EV power management, robotics, embedded systems, and data center infrastructure. If AI is the brain, $TXN supplies the body, delivering power, signal chain, sensing, and embedded control for the physical AI stack. Compared with $ADI, $ON, $QCOM, and $NVDA, TXN maintains superior margin durability, vertical manufacturing integration, and diversified real-economy exposure, reinforcing its role as a cycle bellwether.

📊 Valuation and Capital Health

• Market Cap: ~$178.6B

• Forward P/E: ~35.8x

• PEG: ~10.3

• ROE: 46.5%

• ROIC: 41.2%

• FCF Margin: ~12%

• Capex Cycle: Peaking, declining into 2026

• Balance Sheet: Strong, buybacks accelerating

Valuation remains premium, justified if utilisation normalises and margins recover into FY2026.

⚖️ Verdict and Trade Plan

I believe $TXN has officially turned the corner, signalling the end of the semiconductor downturn and the early phase of a real-economy chip expansion cycle. Free Cash Flow inflection, end-market diversification, data center momentum, and a falling capex burden improve medium-term upside asymmetry.

• Entry Zone: $200 to $210

• Stop Level: Below $190

• Base Target: $225

• Stretch Target: $240 to $260

• Bullish Confirmation: Sustained volume expansion, positive gamma regime, margin stabilisation

• Upcoming Catalysts: Q1 earnings, fab utilisation updates, data center revenue disclosure, macro industrial demand signals

🏁 Conclusion

I’m convinced Texas Instruments is transitioning from cycle survivor to cycle leader, with Free Cash Flow acceleration, analog dominance, and secular industrial, automotive, and data center growth redefining its long-term trajectory.

📌 Key Takeaways

• Q4 Revenue $4.42B, +10% YoY

• FY2025 Revenue $17.68B, +13% YoY

• EPS $1.27 vs $1.28 est, Q1 EPS guide up to $1.48

• Free Cash Flow $2.94B TTM, +96% YoY

• Analog Revenue $3.62B, +14% YoY

• Analyst PT Range $160 to $260, technical base target $225

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