Texas Instruments Tanks as Slow-Burn Chip Recovery Fails to Spark Investor Confidence

Texas Instruments (TXN) delivered a quarter that says “recovery, but keep your enthusiasm on a dimmer switch.” The analog giant is seeing green shoots outside of the AI craze—notably in autos, industrial, and pockets of personal electronics—yet the pace is slower than prior upcycles and not enough to change the near-term trajectory for PCs or broad mobile demand. Management described the overall semiconductor recovery as “continuing” but moderated by macro uncertainty and seasonality. That mix, combined with heavier depreciation and disciplined wafer starts, left investors unconvinced: shares are down about 8% premarket and, technically, the stock has slipped below the $170 support area. If it can’t reclaim that level, a drift toward ~$159 is in play.

Against expectations , Q3 results were fine on the top line but softer on the outlook. Revenue of $4.74 billion beat Consensus (~$4.65B), up 14% year over year and 7% sequentially, with Analog and Embedded both growing. GAAP EPS of $1.48 landed essentially in line (consensus $1.48–$1.49), though it carried a $0.10 headwind not in the original guide, including $0.08 of restructuring tied to efficiency initiatives and the planned wind-down of the last 250-mm fabs. Operating margin was 35.1%, down from 37.4% a year ago, reflecting lower gross margin from mix, higher depreciation, and reduced wafer loadings into Q4.

By end market, the quarter’s puts and takes were more encouraging than the headline EPS suggests. Industrial revenue rose about 25% year over year and edged higher sequentially after a strong Q2; automotive grew upper single digits YoY and ~10% sequentially, broad-based across regions; personal electronics ticked up low-single-digits YoY and upper-single-digits sequentially; enterprise systems climbed ~35% YoY (and ~20% sequentially), and communications increased ~45% YoY (~10% sequentially). Management also flagged data center as TXN’s fastest-growing market this year, running at roughly a $1.2B 2025 run rate and up more than 50% year-to-date; the company plans to break this out starting Q1.

The rub is the near-term guide. TXN set Q4 revenue at $4.22–$4.58 billion (midpoint ~$4.40B), below the Street (~$4.51–$4.52B), and EPS at $1.13–$1.39 (midpoint ~$1.26), roughly 10% shy of expectations. Seasonality explains part of it, but so do deliberate load-cut decisions to keep inventory from building. Management reiterated that customer inventories are low and the channel cleanup is “behind us,” yet they prefer to preserve flexibility rather than chase a marginal build into year-end. The guide also bakes in a 13% effective tax rate under new U.S. tax legislation (and 13%–14% in 2026), an incremental EPS drag.

Gross margin dynamics remain the focal point for investors. Sequentially, GM eased as depreciation stepped higher and utilization adjusted lower; CFO Rafael Lizardi signaled that Q4 GM will again reflect lower volumes, rising depreciation, and reduced wafer starts. OpEx was $975 million (up ~6% YoY) and should be roughly flat into Q4 excluding restructuring. The company emphasized that the current investment cycle—in fabs and 300-mm internal manufacturing—positions TXN for durable cost advantage, but at this troughy moment it amplifies GM volatility. That’s the near-term trade-off: long-term moat building versus cyclical optics.

Working capital and cash generation were constructive. Inventory dollars were essentially flat while inventory days fell by the mid-teens quarter over quarter to roughly the low-200s, consistent with the plan to hold service-ready stock without inflating balances into year-end. Cash flow from operations was $2.2B in Q3 and $6.9B over the trailing 12 months; trailing free cash flow was $2.4B versus ~$1.5B a year ago, helped by the gradual normalization of demand and the mix benefit from 300-mm scale. TXN returned $6.6B to owners over the past year via dividends and buybacks and continues to message free-cash-flow per-share growth as the central long-term objective.

On the call, color around the external environment was measured. China demand “came back to normal” after prior quarter pull-ins; pricing remains orderly with an expected low-single-digit decline in 2025; lead times are stable and competitive. CapEx next year should land at the lower end of prior ranges as the heavy lift of footprint build-out tapers. Management framed the guide as “roughly seasonal,” with the recovery intact but slower than historical patterns—language that squares with broader industrial and auto softness pockets even as specific sub-verticals (factory automation, power, vehicle electrification) hold up.

Street reaction captured that two-handed message. Stifel trimmed its price target to $170 from $185, citing a respectable Q3 top-line beat but an underwhelming Q4 guide and ongoing gross-margin pressure into calendar year-end. Many analysts echoed similar themes: the thesis isn’t broken, but the margin path is choppy until the cycle gathers more momentum and depreciation rolls through. In the interim, TXN’s internal manufacturing strategy, balanced end-market exposure, and improving free cash flow trajectory remain the offsets.

Bottom line: TXN’s quarter supports a non-AI recovery narrative—autos, industrial, comms/enterprise all improving—but the slope is modest and the near-term guide keeps expectations contained. With shares now below $170 and the 50/200-day moving averages overhead, the technicals argue for caution unless the stock can quickly reclaim prior support; failure to do so raises risk toward ~$159. Fundamentally, the setup is one of patience: if seasonal headwinds fade, tax rate resets are digested, and utilization normalizes, the ingredients for firmer margins in 2026 are there. For now, it’s a slow-build story with solid cash discipline rather than a snap-back turnaround.