Texas Instruments and Microchip: Riding the Recovery Wave with Evercore's Backing

The semiconductor industry’s cyclical nature has left many companies grappling with inventory overhang and demand volatility. Yet, Texas Instruments (NASDAQ:TXN) and Microchip Technology (NASDAQ:MCHP) stand out as potential winners in 2025, backed by bullish calls from Evercore ISI. With their upcoming earnings dates on the horizon and strategic repositioning underway, both stocks present compelling investment opportunities—if they can deliver on recovery expectations.

Texas Instruments: Free Cash Flow Growth Drives the Long Game

Texas Instruments’ Q2 2025 earnings, expected on July 22, will be a key test of its ability to navigate inventory challenges and capitalize on cyclical recovery. Analysts at Evercore ISI highlight free cash flow (FCF) growth as the linchpin of its valuation, projecting FCF per share to rise from a 12-month trough of $1 to $12 by 2027. This optimistic outlook underpins Evercore’s $298 price target—a 24% premium to its current price—assuming Texas Instruments exits its capital expenditure cycle by 2027.

While Texas Instruments’ Q4 2024 revenue fell 1.7% year-over-year to $4.01 billion—below consensus estimates—the firm’s analog and embedded processing segments remain resilient. Evercore notes that inventory levels across distributors and EMS providers are stabilizing, which could reduce headwinds for 2025. Additionally, its dividend yield of 2.8% and 21-year streak of annual hikes provide a safety net for investors.

Key Risks: Persistent inventory overhang in automotive markets and slower-than-expected cyclical demand in communications equipment could delay FCF growth.

Microchip: Restructuring Paves the Way for Recovery

Microchip’s Q3 2025 earnings (reporting on February 6) revealed progress in its turnaround, with net bookings stabilizing and distributor sales nearing their trough. Evercore ISI raised its price target to $71 from $65, citing cost-cutting measures and a strategic shift to higher-margin products. The company’s decision to cut 9% of its workforce and close its Arizona manufacturing facility aims to save $90–$100 million annually, while its RISC-V processor launches target growth markets like IoT and AI.

Despite a projected 42% revenue decline in 2025 (to $4.4 billion), Microchip’s focus on 65% gross margins and 40% operating margins by 2027 align with Evercore’s valuation model. The firm’s $250 million inventory reduction goal (targeting 130–150 days by 2026) further supports its recovery narrative.

Key Risks: Used inventory surges and delayed demand in automotive and industrial sectors could prolong margin pressures.

Why Evercore’s Calls Matter

Evercore ISI’s bullish stance isn’t just about short-term catalysts—it’s a bet on structural advantages:
- Texas Instruments: Dominance in analog chips and a $3.8 billion cash return commitment to shareholders by 2025.
- Microchip: Leadership in 8-bit MCUs (used in automotive and consumer electronics) and a dividend yield of 3.1%, bolstered by $1.9 billion in buybacks since 2023.

Analyst consensus for both stocks reflects this cautious optimism. While TXN’s 2025 EPS is projected to grow 20% year-over-year, MCHP’s EPS is expected to bottom in 2025 before rebounding.

Conclusion: Positioning for a Semiconductor Turnaround

Both Texas Instruments and Microchip are positioned to capitalize on the 2025 cyclical recovery, with Evercore’s price targets reflecting their long-term potential. Texas Instruments’ FCF growth and Microchip’s cost restructuring create asymmetric upside, especially if inventory normalization accelerates.

However, investors must remain mindful of risks:
- Texas Instruments: A delayed cyclical rebound in personal electronics or enterprise systems could pressure margins.
- Microchip: Execution risks around its Tempe fab closure and product transitions to higher-end MCUs.

For now, the data leans bullish. With Texas Instruments trading at 33.5x forward P/E (below its 5-year average of 39x) and Microchip at 102x, investors may find value in the pair’s dividend discipline and free cash flow trajectories. Evercore’s calls suggest these stocks could outperform as the semiconductor cycle turns—a bet worth considering for those with a 2–3 year horizon.

In a sector where patience is rewarded, Texas Instruments and Microchip offer a blend of recovery potential and resilience—making them stocks to watch closely as earnings season unfolds in 2025.