Texas Instruments Faces Stock Drop Amid Activist Investor Criticism and Semiconductor Slump

Texas Instruments (TXN) experienced a notable drop of 5.84% recently, closing at $201.83 per share. Despite this decline, the stock has shown an 18.40% increase year-to-date and a 52-week gain of 18.84%.
Texas Instruments, a semiconductor company established in 1930 and headquartered in Dallas, Texas, designs and manufactures chips sold to electronics designers and manufacturers worldwide. It operates primarily in two segments: Analog and Embedded Processing.
Last week, the company's stock reached a historic high, breaking the $200 barrier. However, activist investor Elliott Investment Management criticized the company's capital allocation, arguing that it has been overspending on new factories and equipment instead of returning cash to shareholders. This critique comes amid a severe downturn in the semiconductor industry.
Texas Instruments focuses on producing analog chips and embedded computing systems. Unlike chips used in AI and data centers, these products serve fields like automotive and industrial sectors, both of which have shown recent weakness.
In the automotive industry, the initial COVID-19 pandemic led to record-high vehicle sales due to high consumer liquidity and low interest rates. However, the subsequent economic downturn and rising interest rates have cooled the market, resulting in an oversupply of car parts, including chips, which has led to a slowdown in sales and profit pressure.
The industrial sector, a major revenue contributor for Texas Instruments, also experienced demand decline due to high interest rates and a complex macroeconomic environment, prompting companies to reduce spending.
This situation is reflected in Texas Instruments' recent earnings, which have not been particularly optimistic. The stock currently has a price-to-earnings ratio of over 37 times, suggesting significant valuation pressure.
Additionally, Texas Instruments is facing challenges related to its aggressive capital expenditure. CEO Haviv Ilan acknowledged these concerns, highlighting that more than 60% of their high-capital expenditure cycle is complete. He indicated that spending might be flexible in 2026, depending on the recovery in end-demand.
One bright spot is Texas Instruments' recent introduction of the ultra-compact DLPC8445 display controller. This innovative controller, with its compact size and high performance, aims to revolutionize projection display technology for applications such as AR glasses and consumer projectors.
The company also secured a preliminary funding agreement with the US Department of Commerce, which will provide $1.6 billion in grants and $3 billion in loans to build new facilities in Utah and Texas. This substantial investment aims to bolster domestic chip production and create over 2,000 manufacturing jobs.
Although the current stock price seems elevated given the various macroeconomic and geopolitical factors, Texas Instruments continues to invest in its capabilities. With a strong management team and a focus on high-growth areas such as ADAS and industrial automation, the company has solid long-term potential despite the near-term challenges.
Analysts project considerable revenue and earnings growth through 2026. However, Texas Instruments needs to outperform current expectations significantly to justify its high valuation and offer acceptable returns in the coming years.