Texas Instruments Incorporated (TXN) | The Buildout — AI Infrastructure
The Verdict
Texas Instruments makes analog and embedded processing chips that condition real-world signals and manage power in electronic equipment. In the AI buildout, its parts sit throughout the data center power tree, handling power conversion, distribution, and protection, plus signal-chain and embedded control functions. TI is not an accelerator, GPU, HBM, networking switch, or AI ASIC supplier; its exposure is indirect but tied to the rising power demands of data centers.
| Market Cap | — |
| Revenue (TTM) | $19.5B |
| Revenue Growth | +16.7% |
| EBITDA Margin (TTM) | 48.6% |
| Net Debt | $7.1B |
| Earnings Beats | 5 of 7 |
| P/E (TTM) | — |
| EV/EBITDA (TTM) | — |
What We Like
- Revenue growth accelerated from +10% YoY in Q4 2025 to +19% in Q1 2026 and +23% in Q2 2026.
- Data center revenue grew about 90% YoY in Q1 2026 and about 100% YoY in Q2; Q1 marked the eighth consecutive sequential growth quarter.
- Clean-room capacity is available: Sherman 1 full clean room, RFAB2 equipping at a high level, and Lehi 2 shell due end of 2026.
- Pricing moved from low-single-digit 2025 decline to executed increases; Q4 annual discussions and 2027 Embedded pricing are the larger potential.
- TTM free cash flow reached $6.5B in Q2 2026, up from $4.4B in Q1 2026 and $1.7B in Q1 2025.
What We’re Watching
- Demand sustainability remains the core risk; 2025 began strong and then faded in the second half.
- Personal electronics is flat YoY, and management links pressure to customer shortages.
- One unnamed customer is 12% of FY2025 and FY2024 revenue, primarily in Analog.
- Silicon Labs deal adds $17M of acquisition charges per quarter until expected 1H 2027 close; close quarter brings step-up and inventory write-up distortion.
The thesis is strengthening but not yet proven. Broad-based revenue acceleration, executed pricing, and available clean-room capacity align with a broad industrial and data center recovery. The central open question is whether the demand signal remains strong through Q3 and Q4 or repeats 2025's second-half fade.
Earnings Beat
In Q2 2026, Texas Instruments reported revenue of $5.46 billion and EPS of $2.14, both above the top end of guidance. Gross margin reached 61.4%, up 340 basis points sequentially, with operating profit of $2.3 billion, or 42% of revenue. Data center revenue grew about 100% year-over-year, the standout momentum metric.
| Metric | Q2 FY2026 | Q1 FY2026 | Q2 FY2025 | YoY |
|---|---|---|---|---|
| Revenue | $5.5B | $4.8B | $4.4B | +22.8% |
| Gross margin | 61.4% | 58.0% | 57.9% | +350bps |
| EBITDA | $2.9B | $2.4B | $2.0B | +40.8% |
| EPS | $2.15 | $1.69 | $1.42 | +51.6% |
| Data center YoY growth | ~100% | ~90% | n/a | grew ~100% YoY |
I think we are in the start of a cycle that is very, very broad.— Haviv Ilan, July 22, 2026
Management tone: Management shifted from deliberately cautious in Q1, repeatedly citing the 2025 head-fake and demand sustainability, to notably more confident in Q2, describing a very, very broad cycle and an objective to outgrow the data center market. On pricing, management was direct and downplayed the near-term Q3 contribution as almost insignificant.
Management Guidance
For Q3 2026, management guided revenue to $5.65B–$6.15B and EPS to $2.23–$2.57, with an effective tax rate of about 13%. OpEx, net other income/expense, and acquisition charges are expected flat sequentially from Q2; gross margin is expected a little higher rather than flat.
Trajectory
Revenue growth accelerated from +10% YoY in Q4 2025 to +19% in Q1 2026 and +23% in Q2 2026. The Q2 step was broad: industrial grew about 30% YoY, automotive inflected to mid-teens, and data center grew about 100% YoY. Gross margin expanded from 58.0% in Q1 2026 to 61.4% in Q2 2026 on higher revenue and factory loadings, after Q1 was partly offset by capacity-expansion manufacturing costs.
The Model
The model's FY+1 projection is $21,300 million of revenue with $10,799 million of EBITDA, a 50.7% margin. FY+2 reaches $24,000 million of revenue with $12,624 million of EBITDA, a 52.6% margin. The near-term projection reflects above-seasonal momentum; FY+2 embeds continued data center, industrial, and automotive demand plus 300mm fall-through.
| Metric | FY2025 | Next FY (E) | Following FY (E) |
|---|---|---|---|
| Revenue | $17.7B | $21.3B | $24.0B |
| YoY Growth | — | +20.5% | +12.7% |
| EBITDA | $8.0B | $10.8B | $12.6B |
| EBITDA Margin | 45.4% | 50.7% | 52.6% |
Projections are the median of 5 independent model runs. The model’s revenue sits 2.6% above analyst consensus.
For Q3 2026, management guided revenue to $5.65B–$6.15B and EPS to $2.23–$2.57, with an effective tax rate of about 13%. OpEx, net other income/expense, and acquisition charges are expected flat sequentially from Q2; gross margin is expected a little higher rather than flat.
What Could Go Right — and Wrong
- Industrial demand reclaims and moves beyond the 2022 peak; Q2 is still 5–6 points below it, and management says customers are early and not rebuilding inventory.
- Data center application-specific sockets contribute in H2 2026 and into 2027, adding higher-value design-in-backed revenue.
- Executed price increases show up in Q4 2026 annual discussions and 2027 Embedded pricing, lifting revenue and margins beyond unit volume.
- Automotive growth persists from Q2's mid-teens YoY, led by China EVs and hybrids and low customer inventories.
- Silicon Labs closes in 1H 2027 and adds embedded wireless connectivity.
- The 2025 pattern repeats: strong first-half demand fades in the second half.
- Shortages pressure TI's customers; management cited PE challenges and customer shortages.
- Price increases fail to stick or are offset by share loss or input costs; Q3 pricing contribution is expected to be almost insignificant.
- Data center growth slows or TI loses power-socket share; the revenue base is undisclosed and difficult to verify.
- Inventory keeps draining; some parts take 6–9 months to build, limiting upside if demand strengthens.
Looking Ahead
The next twelve months test the durability of broad demand. Q3's above-seasonal guide must convert at the Q3 2026 results, followed by Q4 annual price discussions, Lehi 2 shell completion at end of 2026, the February 2027 capital management call, and the expected 1H 2027 Silicon Labs close. GE Appliances' Louisville program is expected to begin production in 2027.
- Q3 2026Q3 2026 earnings call — Tests conversion of above-seasonal revenue guide and broad-cycle language.
- Q4 2026Annual customer price discussions — Tests whether executed price increases show in revenue beyond unit growth.
- End of 2026Lehi 2 shell completion — Tests Utah capacity schedule and ramp without new customer qualifications.
- February 2027Capital management call — Formal 2027 capex and longer-term capacity color; phase language clarity.
- 1H 2027Silicon Labs acquisition close — Tests regulatory approvals and adds embedded wireless connectivity.
- 2027GE Appliances production expected — Louisville laundry plant ramp; revenue value not disclosed.
Financials
Annual Summary
| Metric | FY2024 | FY2025 | TTM | YoY |
|---|---|---|---|---|
| Revenue | $15.6B | $17.7B | $19.5B | +13.0% |
| Gross Margin | 58.1% | 57.0% | 58.3% | 108bps |
| EBITDA | $7.0B | $8.0B | $81.4B | +13.9% |
| EBITDA Margin | 45.0% | 45.4% | 48.6% | +33bps |
| Net Income | $4.8B | $5.0B | $6.1B | +4.2% |
| Free Cash Flow | $1.5B | $2.6B | $45.3B | — |
| Net Cash | — | — | — | — |
Key Ratios (Trailing)
- P/E TTM—
- EV/EBITDA TTM—
- EV/Revenue TTM—
- Price/FCF TTM—
- Gross Margin (TTM)58.3%
- EBITDA Margin (TTM)48.6%
- Net Margin (TTM)31.1%
- ROIC22.9%
- FCF Conversion56.6%
- SBC / Revenue2.8%
The Company
Texas Instruments designs and manufactures analog and embedded processing semiconductors. Analog products condition, amplify, and convert real-world signals and manage power; embedded processing products provide the digital 'brains' of electronic equipment. In the AI buildout, TI's parts populate the data center power tree, including multiphase VRMs, gate drivers, hot-swap controllers, protection parts, and signal-chain and embedded control sockets.
TI runs an integrated device manufacturer model, or IDM, with 300mm wafer fabs, internal assembly/test, and deliberately high inventory to support short lead times and capture short-cycle demand. The 10-K lists North Texas, Santa Clara, Kuala Lumpur, Aguascalientes, Baguio, and Clark manufacturing sites; management says available clean-room capacity is now a customer-facing advantage.
Business Segments
Competitive Landscape
TI operates across a crowded analog and embedded field. The supplied source material documents one competitor disclosure: NXP Semiconductors describes its data center business as control-plane-only, with no GPUs, no accelerators, and no high-speed AI connectivity. No other competitor metrics are documented in the three sources.
- NXP SemiconductorsData center business is control-plane-only; no GPUs, no accelerators, no high-speed AI connectivity.
Supply Chain
TI sits as an integrated device manufacturer supplying analog and embedded products to industrial, automotive, data center, personal electronics, and communications equipment. No named equipment or materials suppliers for TI are documented in the supplied source material.
More on TXN: Earnings recap