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Texas Instruments (TXN): Q2 2026 results, my verdict

2026-07-24 ·

TXN: see the full analysis on Lubin Investment

Texas Instruments reported revenue of $5.46 billion on July 22, 2026, up 23% year over year and 13% quarter over quarter, with broad growth across industrial, automotive and especially data centers. But my quality filter stays harsh (3 out of 12 criteria) because of five years of free cash flow crushed by a costly industrial bet. Here is how I separate the two.

A quarter that accelerates on every front at once

Texas Instruments reported second quarter 2026 results on July 22, 2026 that mark a genuine break in rhythm: revenue of $5.46 billion, up 23% year over year and 13% versus the prior quarter, net income of $1.98 billion and earnings per share of $2.14, a figure that includes a one time 5 cent benefit not included in the company's original guidance. What sets this quarter apart from a simple isolated rebound is its breadth: growth touched industrial (+30% year over year), automotive (double digit growth, at the low end of the range) and especially data centers, where sales doubled year over year.

For an analog and embedded chipmaker like Texas Instruments, a data center segment that doubles is not a minor detail: these chips (power management, voltage conversion) power the infrastructure that feeds electricity to AI servers, a fast growing market the company historically addressed to a lesser degree. Looking ahead, Texas Instruments guides for third quarter 2026 revenue between $5.65 and $6.15 billion and earnings per share between $2.23 and $2.57, a range that, at its midpoint, would extend this acceleration rather than slow it down.

Why my quality filter stays harsh: a multi-year industrial bet

On my standard model, Texas Instruments validates only 3 out of 12 criteria, a low score for a company whose net margin nonetheless reaches 31.1% over the trailing twelve months, comfortably profitable. The reason for the low score shows up in the trajectory, not in the quarter's snapshot: annual revenue peaked at $20 billion in 2022, before declining to $15.6 billion in 2024, a trough directly tied to the classic cyclical semiconductor downturn, before recovering to $17.7 billion in 2025. Over five years, the annual average therefore comes out negative (around -3.5% a year), even as the most recent trend reverses.

The real shock shows up in cash: free cash flow, meaning the money genuinely left over after the company pays its expenses AND its investments, fell from roughly $6 billion a year between 2020 and 2022 to just $1.3 then $1.5 billion in 2023 and 2024, before recovering to $2.6 billion in 2025. The cause is not a profitability problem (the company stayed profitable throughout, unlike a case such as Intel): it is a deliberate choice. Several years ago, Texas Instruments launched a massive investment plan in new 300 millimeter wafer fabs in Texas and Utah, on the order of several billion dollars a year, to bring production in house and reduce unit costs over the long run. Building a semiconductor fab is expensive and takes years to pay off: it is cash going out today for a cost advantage that only materializes later, once the fabs are fully utilized. This bet mechanically drained available cash during the construction phase, and the company even had to raise debt from $6.8 to $14 billion over the period to fund the investment while maintaining its dividend.

A sector detail that explains a puzzling number: why Texas Instruments holds so much inventory

My model also flags a cash conversion cycle (the time between paying suppliers and collecting from customers) of 233 days, very long, driven almost entirely by 218 days of inventory tied up. Taken alone, this figure would look like poor management. But it is actually a structural feature of Texas Instruments' business: unlike a leading edge chipmaker selling short lifecycle components, most of Texas Instruments' catalog (analog and embedded chips) stays in production for ten, twenty, sometimes thirty years for industrial and automotive customers who require decades long supply guarantees. The company therefore deliberately holds much higher inventory than a typical tech company, both to honor these long term commitments and to smooth fab utilization across cycles. High inventory here is not a warning sign, but the structural cost of a business model built for durability rather than speed.

The price: why the headline P/FCF does not yet tell the right story

The P/FCF (the share price divided by free cash flow generated per share, over the trailing twelve months) comes out at 77.2 times in my model, a multiple that looks very high for a mature company. But this figure is calculated over a twelve month window that still includes the weakest quarters of the 2023-2024 cash trough, before the recent acceleration. Yet at the July 22 release, the company itself disclosed free cash flow of $6.5 billion over its trailing twelve months (through the end of June 2026), more than double the figure implied by my model. With this fresher number, the real multiple would sit closer to 40 times the $257 billion market cap, still expensive, but a very different story from cash that keeps collapsing.

This is a textbook case of what to check before concluding: when a valuation model relies on a rolling twelve month window, a sharp turnaround in the most recent quarter takes time to fully show up. For the same reason, my reasonable buy price model shows a target of only $76.14 against a $279.58 share price: this figure is also built on the recently depressed cash history, so it is not reliable as is. The right instinct is not to take it at face value, but to wait for two or three quarters to confirm the trajectory before judging the price with a tool that has become meaningful again.

How I read it

Texas Instruments illustrates a different profile from Intel, a comparison the sector invites: where Intel went through a genuine profitability crisis (negative net margin, a technology catch up bet), Texas Instruments stayed solidly profitable (31% net margin) throughout its own investment cycle. This is not a survival bet, it is a deliberate choice to self fund a capacity expansion during a semiconductor cycle trough, even at the cost of available cash and rising debt for a few years. The July 22 quarter, with broad growth across industrial, automotive and data centers, is the first clear signal that this investment is starting to pay off. My quality filter stays low because it scores a five year trajectory still marked by the trough, not yet the recovery underway.

What would change my mind, in either direction: if the October Q3 release confirms revenue at the top of the guided range with free cash flow continuing to climb toward that $6.5 billion trailing figure, the five year trajectory starts genuinely turning, and my quality score should follow within a couple of quarters. If growth stalls again or the capex plan gets extended further without the promised payoff showing up in cash, the more cautious reading (an expensive multi-year bet still unproven) stays the right one. I am watching both the data center growth rate and the pace of debt paydown as the two clearest tells. You can find the full breakdown on the Texas Instruments analysis page, understand why rising debt is not automatically a negative signal in my article on debt in my method, and my full methodology.

FAQ

Why did Texas Instruments post such strong growth in Q2 2026?

Revenue grew 23% year over year ($5.46 billion), driven by broad growth: industrial +30%, automotive double digit, and data centers doubling year over year thanks to demand for power management chips used in AI infrastructure.

Why does Texas Instruments' quality score stay low despite these good results?

My filter judges a 5 year trajectory, not a single quarter: revenue declined on average over the period (2022-2024 cyclical trough) and free cash flow collapsed from $6 billion to $1.3 billion a year due to a massive investment plan in new fabs.

Why does Texas Instruments hold so much inventory (218 days)?

Unlike a leading edge chipmaker, most of Texas Instruments' catalog (analog and embedded chips) stays in production for 10 to 30 years for industrial and automotive customers requiring long term supply guarantees, which forces the company to hold higher inventory than the sector average.

Does a 77.2 times P/FCF mean Texas Instruments stock is very expensive?

This figure relies on a 12 month window that still includes the weakest quarters of the 2023-2024 cash trough. The company itself discloses more recent free cash flow of $6.5 billion, which would bring the real multiple closer to 40 times, a different story even if still not cheap.

Should I buy Texas Instruments stock after these results?

The quarter is a clear recovery signal after a multi year cash trough, but my quality filter stays low and my price model still relies on depressed history, so it is not reliable as is. I am waiting for 2-3 quarters of confirmation before deciding. This is not personalized investment advice, do your own research.

TXN: see the full analysis on Lubin Investment

About the author

Written by Lubin Danilo, founder of Lubin Investment. A self-taught individual investor, I find fundamental analysis fascinating, and it has delivered excellent results. For three years now, my performance has beaten the S&P 500. But analyzing every stock took too much time: sites with incomplete data, calculation methods and criteria never aligned with mine. And spotting the best stocks was just as time-consuming, even with my own well-defined checklist. So I put my software development background to work to build this software, base my investment strategy on its results, and share it with people who share the same passion as me. It judges a company's quality and its price separately, using criteria drawn from the financial literature (Warren Buffett, Michael Mauboussin, Aswath Damodaran).