The Zhitong Finance App learned that the 2026 third quarter results and fourth quarter guidance announced by Texas Instruments (TXN.US) both exceeded Wall Street expectations, and demand in the three major terminal markets of industrial, automotive and data centers improved simultaneously, driving significant growth in the company's revenue and gross margin. After the financial report was announced, investment banks such as Morgan Stanley, J.P. Morgan Chase, Jefferies, and Bernstein raised their target prices one after another, but there are still differences among institutions about the sustainability of the recovery of the analog chip industry, company valuations, and future capital expenses. The stock price of Texas Instruments rose for a while before the market on Thursday. After opening, all gains were erased, and now it is down 0.81%.
Texas Instruments third-quarter revenue was US$6.055 billion, up about 28% year on year, up about 11% month on month, higher than market expectations of US$5.921 billion; earnings per share were US$2.62, which also exceeded market expectations of US$2.41. The gross margin reached 64.2%, up about 2.8 percentage points from 61.4% in the second quarter, and about 2.4 percentage points higher than market expectations of 61.8%, making it one of the most prominent highlights of this financial report.
Looking at the business structure, the analog chip division's third-quarter revenue was US$4.911 billion, up about 32% year on year, up about 13% month on month; revenue from the embedded processing business was US$858 million, up about 21% year on year. In terms of the terminal market, the data center business performed the strongest, with revenue up about 95% year on year and about 20% month on month; industrial business revenue increased by more than 40% year on year, up about 10% month on month; automobile business revenue increased by about 15% year on year and about 10% month on month.
Texas Instruments expects fourth-quarter revenue of about US$6.05 billion, higher than market expectations of US$5.73 billion; the median earnings per share guide is US$2.62, which is also higher than market expectations of US$2.26. Bernstein pointed out that the implied gross margin for the fourth quarter was around 64%, higher than market expectations of 61.2%. Considering that seasonal demand usually slows down in the fourth quarter, the company expects that revenue is basically flat month-on-month and is also significantly better than historical seasonal patterns.
Morgan Stanley analyst Joseph Moore raised the Texas Instruments target price from $255 to $278, but maintained an “underweight” rating. He said that the improvement in the company's gross margin has exceeded expectations, mainly benefiting from revenue growth and capacity utilization, and improvements in product prices and business mix have also brought some contributions.
However, Moore believes that the overall recovery of the analog chip industry is still in a relatively early stage. Despite the recovery in industrial demand, low automotive customer inventories, and continued expansion of the data center business, there is currently no widespread and urgent chip supply shortage from 2021 to 2022.
Morgan Stanley pointed out that Texas Instruments currently has an inventory turnover of 194 days, which is close to 200 days. At the same time, the contribution of product price increases in the second half of 2026 to performance is still limited, but as the 2027 annual price negotiations advance, pricing factors may become a more important driving force for future profit margin improvements.
Moore also acknowledged that as industry supply tightens, the manufacturing capacity previously built by Texas Instruments on a large scale may turn into a competitive advantage. The company can meet customer needs by increasing equipment and expanding production, so as to gain more market share. However, capacity expansion also means additional investment, and there is still uncertainty about the extent to which the additional revenue will eventually be converted into free cash flow.
Texas Instruments maintains the 2026 capital expenditure guideline of 2 billion to 3 billion US dollars, and actual expenditure is likely to be close to the upper limit of the range. Management plans to provide a 2027 capital expenditure outlook in the capital management update in February next year. Morgan Stanley believes that next year's spending is likely to remain at a similar level, so it continues to prefer Adderall Semiconductors (ADI.US), which is less capital-intensive and has a higher return on invested capital.
In contrast, Jefferies analyst Blayne Curtis is more optimistic about Texas Instruments's future growth prospects and raised the target price from $260 to $300, maintaining the “hold” rating. Curtis pointed out that the Texas Instruments business revenue has once again reached its historical peak in 2022, yet more than half of the company's business has not yet recovered to previous highs, which means there is still room for further development in this round of cyclical recovery.
He believes that as large cloud computing companies continue to increase their capital expenses, the Texas Instruments data center business is expected to continue to expand, and the gradual expansion of chip products for specific applications next year may also lead to additional market share growth. Coupled with low customer inventories in the automotive industry and the potential benefits brought about by 2027 product pricing negotiations, the company is expected to continue its growth momentum until 2027.
J.P. Morgan analyst Harlan Sur also believes that there is room for continuation of the upward cycle Texas Instruments is in, and the target price will be raised from $340 to $365. Sur said that the third quarter results and fourth quarter guidance of Texas Instruments clearly exceeded market expectations, reflecting the simultaneous growth and acceleration of demand in the three core markets of industrial, automotive and data centers. Furthermore, product pricing has begun to provide gentle support, and the company's increasing production capacity advantage has also placed it in an advantageous position against the backdrop of the gradual tightening of analog chip supply.
He believes that the above factors will jointly determine Texas Instruments' revenue growth, profit margins, and free cash flow performance in the next few years.
Bernstein analyst Stacy Rasgon raised the Texas Instruments target price from $290 to $310, maintaining a rating “consistent with market performance.” The bank believes that the company's industrial and data center business continues to be strong, automotive business prospects are improving, and gross margin is approaching the level before the start of the previous capital expenditure expansion cycle.
As a result, Bernstein significantly raised its profit forecast, raising the 2026 revenue forecast from US$21.7 billion to US$22.4 billion, and the 2027 revenue forecast from US$23.2 billion to US$26.5 billion; while the 2027 earnings forecast per share was raised from US$9.16 to US$11.73.
However, Bernstein also lowered the target valuation ratio from 30 times to 25 times, believing that as profit expectations rise, the current valuation of Texas Instruments is gradually approaching a reasonable level in the middle of the industry cycle. The bank pointed out that how long the recovery in industrial demand will last, when the data center business can become a more important source of revenue, and how much capital expenditure will be required for future capacity expansion are still issues investors need to pay attention to.
Overall, Texas Instruments's latest financial report further confirms that the recovery in demand in the analog chip industry is expanding from the industrial sector to the automotive and data center markets. In particular, data center revenue has nearly doubled, and gross margin has improved beyond expectations, providing a basis for Wall Street to raise profit forecasts.
However, against the backdrop of the company's stock price having risen sharply this year, the market's focus is gradually shifting from short-term performance improvements to the sustainability of recovery, and whether investment in additional production capacity can bring sufficient return on free cash flow. This also explains why although many investment banks have raised their target prices, there are still clear differences in investment ratings for Texas Instruments.