- If you are wondering whether Texas Instruments at around US$216.71 is still reasonably priced or starting to look stretched, you are asking the right question.
- The stock has posted returns of 8.7% over the last 7 days, 13.6% over the last 30 days, 22.1% year to date and 48.1% over the past year, which naturally raises questions about how much of the story is already in the price.
- Recent coverage has focused on Texas Instruments as a key name in semiconductors and its role in supplying chips across a wide range of end markets. This helps explain why investors keep a close eye on its share price. Broader discussion has also touched on how established chip companies fit into themes like AI infrastructure and industrial automation, giving more context for the recent returns.
- On Simply Wall St's framework, Texas Instruments has a valuation score of 2 out of 6. The next step is to look at how different valuation methods judge that price today, followed by a final section on a deeper way to think about valuation beyond a single score.
Texas Instruments scores just 2/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.
Approach 1: Texas Instruments Discounted Cash Flow (DCF) Analysis
A Discounted Cash Flow model takes projected future cash flows, then discounts them back into today’s dollars to estimate what the business might be worth right now. It is essentially asking what a stream of future cash flows is worth in present terms.
For Texas Instruments, the model used is a 2 Stage Free Cash Flow to Equity approach. The latest twelve month free cash flow is about $2.1b. Analyst and extrapolated projections supplied to Simply Wall St show free cash flow rising to $12.1b by 2030, with a path that includes figures between roughly $6.5b and $16.9b over the next decade, all in US$ terms. Estimates beyond the typical 5 year analyst horizon are extrapolated within the model rather than coming directly from analyst reports.
Discounting these projected cash flows back to today gives an estimated intrinsic value of about $165.17 per share. Against a current share price around $216.71, the DCF output points to the stock trading about 31.2% above that estimate. On this specific cash flow model, Texas Instruments appears expensive relative to the DCF-derived value.
Result: OVERVALUED
Our Discounted Cash Flow (DCF) analysis suggests Texas Instruments may be overvalued by 31.2%. Discover 55 high quality undervalued stocks or create your own screener to find better value opportunities.
Approach 2: Texas Instruments Price vs Earnings
For a profitable company like Texas Instruments, the P/E ratio is a useful way to think about what you are paying for each US$1 of earnings. A higher P/E usually reflects higher expected growth or lower perceived risk, while a lower P/E can point to more muted growth expectations or higher risk.
Texas Instruments currently trades on a P/E of 39.68x. That sits close to the Semiconductor industry average of 41.93x and well below the peer group average of 85.34x, so on simple comparisons the valuation looks more restrained than many peers but broadly in line with the wider industry. Simply Wall St goes a step further with its proprietary Fair Ratio, which estimates what a company’s P/E might be given its earnings growth profile, industry, profit margins, market cap and risk factors.
Because the Fair Ratio of 28.89x is tailored to Texas Instruments rather than being a blunt sector or peer average, it can give a more company specific read on pricing. Comparing the Fair Ratio of 28.89x with the current P/E of 39.68x suggests the shares are trading above that fair value estimate on this earnings based view.
Result: OVERVALUED
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Upgrade Your Decision Making: Choose your Texas Instruments Narrative
Earlier it was mentioned that there is an even better way to understand valuation, and that is where Narratives come in. They give you a clear story behind your own fair value, revenue, earnings and margin assumptions, then link that story to a forecast and finally to a fair value that you can compare with the current price on Simply Wall St’s Community page. Narratives for Texas Instruments already range widely, from a more cautious view with a fair value of about US$160.00 to a far more optimistic one at about US$270.00. All of this updates automatically as fresh news, guidance or earnings arrive, so you can quickly see whether your chosen Narrative still justifies the price you are seeing on screen.
For Texas Instruments however, here are previews of two leading Texas Instruments narratives to make comparison easier:
The first is a bullish narrative that focuses on long term capital investment and the potential role of Texas Instruments in areas such as automation, industrial technology and AI at the edge.
The second is a more cautious narrative that focuses on competition, regulatory risk and whether margins near 30% and current P/E levels may be high if growth settles at a lower pace.
Fair value in this bullish narrative: US$314.44 per share.
Implied pricing gap versus the recent US$216.71 share price: about 31.1% undervalued using ((314.44 minus 216.71) divided by 314.44).
Revenue growth assumption in this narrative: 15% a year.
- Views the current multiyear capacity build as a temporary drag on free cash flow that could provide more cost efficient, U.S. based 300mm analog manufacturing and stronger supply resilience over time.
- Highlights a solid balance sheet, a long dividend record and a portfolio of long lived analog and embedded products that together are seen as supporting durable revenue and multi cycle earnings potential.
- Describes Texas Instruments as positioned for trends in automation, electrification and AI outside the data center, with the narrative fair value of US$314.44 implying meaningful long term upside relative to the recent share price.
Fair value in this more cautious narrative: US$160.00 per share.
Implied pricing gap versus the recent US$216.71 share price: about 35.4% overvalued using ((216.71 minus 160.00) divided by 160.00).
Revenue growth assumption in this narrative: about 6.55% a year.
- Flags maturing analog and embedded markets, rising competition from lower cost Asian peers and higher regulatory and environmental compliance costs as potential drags on margins and free cash flow over time.
- Points to ongoing heavy capital spending and broad industry capacity additions as factors that could increase the risk of future oversupply, softer capacity utilization and pressure on profitability in a downturn.
- Anchors on a fair value of US$160.00 per share that sits below the recent price, with the view that current expectations for margins around 30% and valuation multiples could be demanding if growth or execution falls short.
These two narratives show how the same set of facts around capacity expansion, end markets and AI related demand can lead to very different fair values. The key step for you is deciding which assumptions feel closer to your own view of Texas Instruments and its risks.
Do you think there's more to the story for Texas Instruments? Head over to our Community to see what others are saying!
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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