Texas Instruments Slides as Cautious Q3 Outlook Tempers Solid Q2 Beat

Texas Instruments (NASDAQ: TXN) delivered better-than-expected results for the second quarter of 2025, but a cautious outlook for Q3 has sent shares tumbling roughly 7%, with the stock testing key technical support at its 200-day moving average near $191. Despite healthy growth across core segments and a continuation of the cyclical recovery narrative, management’s more measured tone on the call, coupled with conservative Q3 guidance, raised questions about the sustainability of recent strength—particularly in industrial and China markets.

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For Q2, TXN reported revenue of $4.45 billion, ahead of the $4.36 billion consensus. EPS landed at $1.41, topping the $1.35 Street estimate. Net income rose 15% year-over-year to $1.3 billion, while operating profit reached $1.56 billion. Gross margins expanded by 110 basis points sequentially to 58%. Analog revenue—by far its largest segment—rose 18% Y/Y to $3.5 billion, and Embedded Processing grew 10%. Free cash flow on a trailing 12-month basis totaled $1.8 billion, and management reiterated plans for disciplined CapEx spending amid what it calls a “non-linear recovery.”

Yet despite the solid print, it was the Q3 guide that drew investor ire. The company expects revenue between $4.45 billion and $4.8 billion, and EPS between $1.36 and $1.60. While the revenue midpoint ($4.625 billion) edged out consensus ($4.59 billion), the EPS midpoint ($1.48) fell short of the $1.51 analysts were expecting. CEO Haviv Ilan said that “Q2 was particularly strong in industrial and China,” suggesting that pull-forward demand—likely spurred by tariff fears—may not persist into the back half. The auto segment, meanwhile, declined low-single digits sequentially, bucking peer commentary suggesting stabilization in that end market.

On the earnings call, Ilan emphasized flexibility and geopolitical agility, stating that “tariffs and geopolitics are disrupting and reshaping global supply chains,” while also noting the difficulty in parsing how much of the revenue uplift came from cyclical improvement versus pull-in behavior. CFO Rafael Lizardi added that higher depreciation costs would slightly pressure margins in Q3, and that the company’s EPS guide does not yet reflect changes from recently enacted U.S. tax legislation, which could benefit cash flow beginning in 2026.

Segment commentary provided mixed signals. Industrial led the quarter with upper-teens growth year-on-year, while personal electronics and communications equipment posted strong 25% and 50% gains, respectively. The auto business, however, disappointed. Despite a mid-single-digit year-over-year gain, sequential growth turned negative—down low-single digits—a result that raised eyebrows given recent upbeat tone from peers like NXP. Some analysts speculated that the gap could be due to TXN’s broader customer base or timing differences in de-stocking behavior.

The broader takeaway from the call was that management is urging caution without abandoning the recovery thesis. “We are in the fourth of five markets in recovery,” said Ilan, highlighting that only automotive remains soft. Still, the tone was more defensive compared to Q1’s cautious optimism. Multiple analysts pressed management on the shift, with Bernstein’s Stacy Rasgon questioning the disconnect between strong recent results and the muted Q3 forecast. “It doesn’t sound maybe quite exuberant,” Rasgon observed—an assessment echoed by others on the call.

Texas Instruments’ commentary comes at a critical time for the semiconductor group. As one of the earliest names to report this earnings season, TXN’s results are often treated as a read-through for peers. Its reputation as a bellwether—selling building-block chips across more than 100,000 customers and nearly every end market—means sentiment shifts around TXN can ripple across the sector. That dynamic was on full display Tuesday evening, with the broader analog and microcontroller complex under pressure following the print.

From a positioning standpoint, analysts noted that investor expectations may have run too far ahead. After a 15% year-to-date rally and a nearly 30% rebound from the April lows, TXN was priced for a cleaner recovery arc. The Q2 beat, while commendable, didn’t clear the high bar set by recent optimism around a soft landing, a U.S.-China détente, and easing tariff pressure. “The stock's move down after hours is an overreaction,” one analyst commented, “but it reflects crowded long positioning and a reality check on the pace of improvement.”

To be sure, the long-term story remains intact. Management reiterated plans to expand domestic production capacity, with a $60 billion investment in U.S. fabs in Texas and Utah already underway—an initiative welcomed by the Trump administration. Capital returns remain healthy, with $1.2 billion in dividends paid and $302 million in share repurchases last quarter. Free cash flow should continue to improve in 2026 as depreciation flattens and growth reaccelerates.

Ultimately, while Q2 showed tangible progress in TXN’s post-downcycle rebound, the Q3 guide underscores the bumpy nature of normalization. Investors may need to adjust to a slower, non-linear recovery path—one increasingly shaped by tariffs, policy, and inventory dynamics. For now, the stock is holding its 200-day moving average, but bulls will need confirmation that Q2 wasn’t just a tariff-fueled flash in the pan.