Texas Instruments: A Defensive Semiconductors Stock for Diversification

Texas Instruments is a defensive semiconductor stock with a cyclical uptick in analog and embedded chip sales. It provides diversification against tech cycles that affect other major semis. However, the stock is not a buy at any price.

Title: Texas Instruments: A Defensive Semiconductor Stock with Cyclical Upticks

Texas Instruments (NASDAQ: TXN) has long been considered a must-have stock in a semiconductor portfolio due to its defensive positioning and cyclical upticks in analog and embedded chip sales. The company provides diversification against tech cycles that affect other major semiconductor stocks. However, as seen during the April 2025 tariff sell-off, the stock's defensive characteristics are not as evident during wider market sell-offs. While Texas Instruments offers a decent yield for income seekers, its valuation and recent performance warrant caution for fresh entries.

# Revenue and Margins: Short-Term Caution

Texas Instruments has seen a continued recovery in its top-line revenue over the past year, with a 16% YoY increase in Q2 2025. This recovery is driven by returning analog demand, which is typically more resilient over economic cycles than memory or higher-end logic chips. The company's long sales cycles and customer stickiness further enhance its defensive profile. However, the recent recovery in demand could be due to stockpiling ahead of full-fledged tariff impacts. Management has taken a cautious stance with Q3 guidance looking at $4.45-4.8 billion in revenues amid tariff uncertainties. The company is also exposed to input cost disruptions, which could impact its net margins currently just below 30%.

# Valuations: Not Cheap

At a forward PE ratio of ~36x, Texas Instruments appears slightly expensive compared to its short-term risk profile. This valuation is higher than the recent averages of ~30x and significantly higher than the 5-year average of ~26x. The company's premium valuations, in comparison to sector averages, leave little room for rerating even on longer-term continued demand rebound or margin restoration. The current valuations have factored in extensive usage in new-age cars, electric vehicles, and features like ADAS. However, the company's diminishing return on assets and equity, along with a higher debt-to-equity ratio, could challenge the valuation premium going ahead.

# Where to Expect Resilience

One of the key reasons to hold Texas Instruments at current levels is its history of R&D and innovation focus. The company's continued investment in emerging technologies such as AI-enabled radar sensors for vehicle safety and integrated neural network accelerators shows potential for long-term relevance. Additionally, Texas Instruments has committed $60 billion to enhance its fabrication capacity in Texas and Utah, which could help overcome geopolitical supply chain issues and tariffs.

# Strong Hold: Wait for Entries

While Texas Instruments remains a strong hold for long-term investors due to its niche sticky demand and innovation focus, short-term caution is advised due to tariff fears and environments that support Chinese chipmakers with subsidies against the steep tariffs on Texas Instruments. The stock's dividends, while supportive and stable, are entirely dependent on net income, and any further margin hit could mean digging into cash reserves to fund the dividend. A buy on dip strategy should be implemented, with $150 as a strong support and $200 as resistance.

# Conclusion

Texas Instruments offers a defensive position in a semiconductor portfolio, supported by cyclical upticks in analog and embedded chip sales. However, its valuation and recent performance suggest caution for fresh entries. The stock's strong fundamentals and strategic investments make it an attractive option for long-term investors, but careful consideration of potential risks and a systematic dollar average mindset are recommended.

# References:
[1] https://seekingalpha.com/article/4817707-texas-instruments-a-defensive-semi-stock-but-not-at-any-price
[2] https://www.ainvest.com/news/texas-instruments-undervalued-stock-poised-growth-strategic-manufacturing-footprint-2508/