How New U.S. Chip Production Rules Could Impact Texas Instruments Valuation

The U.S. semiconductor industry is undergoing a strategic transformation, driven by the CHIPS and Science Act of 2022 and its 2025 regulatory updates. For Texas Instruments (TI), these developments represent both a strategic inflection point and a valuation recalibration. With up to $1.6 billion in direct funding and an estimated $6 billion to $8 billion in investment tax credits, TI's expansion of 300mm wafer fabrication facilities in Texas and Utah underscores the federal government's commitment to reshoring critical manufacturing and strengthening supply chain resilience, as noted in a Department of Commerce announcement. This analysis explores how these incentives, coupled with TI's domestic production strategy, could reshape its financial outlook and market valuation.

Supply Chain Resilience: A Strategic Pillar

The CHIPS Act's emphasis on supply chain resilience directly aligns with TI's long-term goals. By constructing three new 300mm wafer fabrication plants-two in Sherman, Texas (SM1 and SM2), and one in Lehi, Utah (LFAB2)-TI aims to produce over 95% of its wafers internally by 2030, according to a TI press release. This shift reduces reliance on foreign suppliers, a critical vulnerability exposed during recent global chip shortages. According to a report by the U.S. Department of Commerce, securing domestic production of foundational analog and embedded processing chips is essential for both economic and national security, a point underscored in a Treasury press release. For TI, this strategy not only mitigates geopolitical risks but also enhances operational efficiency, as internal production cuts logistics delays and cost volatility.

The financial implications of this resilience are significant. Analysts at PwC note in a PwC report that U.S. semiconductor manufacturers require $9 billion in one-time capital expenditures to align chemical and material supply chains with manufacturing capacity. TI's $18 billion investment plan through 2029, supported by CHIPS Act incentives, positions it to outpace competitors in this race. By 2030, the company projects the creation of 2,000 direct jobs and tens of thousands of indirect roles, further solidifying its domestic footprint, according to a Semiconductor Digest report.

Manufacturing Incentives: Tax Credits and Direct Funding

The CHIPS Act's Advanced Manufacturing Investment Credit (AMIC) offers a 25% tax credit for qualified property placed in service after 2022, rising to 35% after 2025, as detailed in a Tax Adviser article. For TI, this translates to a projected $6–8 billion in tax savings, effectively reducing the net cost of its $18 billion investment plan by one-third. Treasury Department final rules clarify that wafer production, including photovoltaic applications, qualifies for these credits, broadening TI's eligibility, as summarized in Baker Tilly guidance.

Direct funding further amplifies these benefits. The $1.6 billion in CHIPS Act support for TI's new facilities offsets construction costs, accelerating ROI timelines. As stated by the Biden-Harris Administration in a NIST announcement, this funding is designed to "secure the supply chain for foundational chips used in automotive, industrial, and consumer electronics applications." By lowering capital intensity, these incentives enable TI to scale production faster, capturing market share in high-growth sectors like electric vehicles and industrial automation.

Valuation Implications: DCF and PE Model Revisions

The financial impact of these incentives is evident in valuation models. A discounted cash flow (DCF) analysis previously suggested TI was overvalued by 24.3%, with an intrinsic value of $138.11 per share below its market price, according to a Simply Wall St analysis. However, incorporating CHIPS Act tax credits and direct funding into cash flow projections could significantly alter this assessment. The $6–8 billion in tax savings alone would boost free cash flows by 15–20%, potentially recalibrating DCF valuations to a premium range of $180–$205 per share, as suggested by an Electropages report.

Price-to-earnings (PE) models also show promise. TI's current PE ratio of 31.1x is slightly below its historical fair ratio of 33.8x, in part based on a TradingKey analysis. With CHIPS Act-driven cost reductions and capacity expansions, earnings per share (EPS) growth could accelerate, pushing the PE ratio higher as investors anticipate improved margins. Analysts at TradingKey project a bull-case fair value of $205.42, driven by industrial automation demand, and a bear-case value of $141.27, factoring in macroeconomic risks.

Risks and Considerations

While the incentives are transformative, challenges remain. Geopolitical tensions, such as potential U.S. tariffs on Chinese imports, could disrupt TI's supply chain for non-semiconductor materials, a risk highlighted by Simply Wall St. Additionally, the $60 billion investment plan requires sustained capital discipline to avoid overleveraging. TI's recent $1.2 billion debt raise and $7.7 billion share repurchase program signal confidence in its balance sheet, but rising interest rates could increase borrowing costs, as noted in a Monexa analysis.

Conclusion

The CHIPS Act's focus on supply chain resilience and manufacturing incentives is reshaping TI's strategic and financial trajectory. By securing domestic production capacity and leveraging tax credits, the company is positioned to enhance margins, reduce geopolitical exposure, and capture long-term demand in critical sectors. While valuation models remain mixed, the integration of CHIPS Act benefits into cash flow and earnings projections suggests a compelling case for upside potential. For investors, TI's alignment with U.S. policy priorities and its execution on large-scale manufacturing make it a key player in the semiconductor renaissance.