Texas Instruments 3Q26: The 300mm payoff is here; Maintain BUY

Texas Instruments (TI) delivered another strong quarter, and Q3 confirmed that its 300mm manufacturing strategy is delivering operating leverage sooner than we expected. We maintain our BUY call and raise our target price to USD391 from USD346, representing 27% upside from USD308.91. We remain positive because TI's ability to supply customers during industry constraints creates potential market-share opportunities, while higher semiconductor content in AI infrastructure and industrial equipment supports growth beyond the current analog recovery. Customer design wins, sustained gross-margin conversion, FY2027 capex and Silicon Labs integration will determine whether the stronger earnings outlook translates into sustainable shareholder returns.

Figure 1: Texas Instruments’ share price

Texas Instruments’ 3Q26 earnings summary

TI reported Q3 revenue of USD6.06bn, up 28% YoY and around 2.5% above consensus. Gross margin rose 680bps YoY to 64.2%, 240bps above consensus. Operating profit rose 73% to USD2.87bn and EPS rose 77% to USD2.62, above the top end of guidance. Profit growth far outpaced sales, as we expected from higher utilisation of TI's 300mm factories.

Table 1: Texas Instruments’ 3Q26 earnings summary

Metric	Q3 26	Q2 26	Q3 25	QoQ	YoY	Consensus/Guide	Beat/Miss (Variance)
Revenue (USD bn)	6.06	5.46	4.74	10.80%	27.70%	Consensus USD 5.90–5.92bn; Guide USD 5.65–6.15bn	Beat (+2.5%)
Gross margin	64.20%	61.40%	57.40%	+280bps	+680bps	Consensus 61.8%	Beat (+240bps)
Operating expenses (USD bn)	1.01	1.04	1.06	-2.80%	-4.40%	Consensus USD 1.02bn	In line (-0.7%)
Operating income (USD bn)	2.87	2.31	1.66	24.40%	72.80%	Consensus USD 2.62bn	Beat (+9.7%)
Operating margin	47.50%	42.30%	35.10%	+520bps	+1,240bps	Consensus 44.5%	Beat (+300bps)
Net income (USD bn)	2.43	1.98	1.36	22.50%	77.80%	Consensus USD 2.23bn	Beat (+8.7%)
Diluted EPS	USD 2.62	USD 2.14	USD 1.48	22.40%	77.00%	Consensus USD 2.41–2.43; Guide USD 2.23–2.57	Beat (+8.3%)
Free cash flow (CFO – capex, USD bn)	2.96	2.19	0.99	35.00%	198%	Consensus USD 2.26bn	Beat (+31.0%)
Source: Bloomberg Finance L.P., iFAST compilations. Data as of 27 October 2026.

Table 2: Revenue segmentation

Business unit (USD mn)	Q3 26	% of rev	QoQ	YoY
Analog	4,911	81%	12.5%	31.7%
Embedded Processing	858	14%	8.9%	21.0%
Other	286	5%	-7.7%	-5.9%
Total	6,055	100%	10.8%	27.7%
Source: Bloomberg Finance L.P., iFAST compilations. Data as of 27 October 2026.

 

The recovery is now broad-based. Industrial revenue grew more than 40% YoY to above its 2022 peak, automotive grew in the mid-teens, and data-centre revenue rose roughly 95% to about 13% of sales. With price increases described as relatively modest, TI is selling more chips rather than simply charging more.

Table 3: Revenue by end market

End market	YoY	QoQ	Management commentary
Industrial	>40%	~10%	First new peak since Q3 22; aerospace and defence, energy infrastructure, test and measurement, robotics
Automotive	Mid-teens	~10%	Low customer inventories; China and the US lead; hybrid and EV powertrain grew about twice the segment rate
Data centre	~95%	~20%	About 13% of revenue; about 10,000 part numbers sold in; no slowdown seen
Personal electronics	Flat	Upper single digits	–
Source: Bloomberg Finance L.P., iFAST compilations. Data as of 27 October 2026.

Q4 guidance indicates demand has carried into year-end

Management guided Q4 revenue to USD5.80–6.30bn. The USD6.05bn midpoint is broadly flat on Q3 and better than the usual seasonal decline, suggesting industrial, automotive and data-centre orders remain supportive. The EPS midpoint of USD2.62 is also flat sequentially. The question now is whether underlying demand can sustain growth into 2027, with potential distributor restocking providing additional upside.

TI kept FY2026 gross capex at USD2–3bn and will outline its FY2027 approach in February; its 10% and mid-teens growth scenarios illustrate equipment needs, not guidance. Annual pricing negotiations are underway, but we include little price contribution until realised prices are clearer.

Table 4: Texas Instruments’ guidance and FY27 outlook

Metric	Q4 26 guidance	Management outlook
Revenue	USD 5.80–6.30bn	Above seasonal (Q4 normally falls by a mid- to high-single-digit percentage); consensus USD 5.73–5.75bn, so the midpoint is +5.4% above
Diluted EPS	USD 2.45–2.79	Consensus USD 2.27–2.29, so the midpoint is +14.7% above
Gross margin	–	Q3 ~90% incremental fall-through; long-term model 75–85%
Operating expenses	Flat to slightly up QoQ	Acquisition charges and net other income similar to Q3
Tax rate	~13%	13–14% in FY27
Capex	FY26 USD 2–3bn, higher end if tools arrive on time	FY27 framework at the February call, set by the growth target (~10% vs mid-teens)
Pricing	H2 26 uptick, mainly Analog, “not very significant this year”	2027 annual negotiations underway with a pricing element; more detail at the January call
Dividend	Raised 7% to USD 1.52 a quarter (23rd consecutive increase)	Aim to return all free cash flow over time
Source: Bloomberg Finance L.P., iFAST compilations. Data as of 27 October 2026.

The share price was little changed after the earnings release (+1.3% after hours). After a 60% year-to-date rally, and with the shares trading at 28x forward P/E close to its historical average of 26.3×, suggesting the rally has priced in improving earnings expectations. Investors now want evidence that volume growth can last into 2027, and at what capex.

The next growth opportunity lies ahead

In our May article, “Texas Instruments FY26: 300mm strategy”, we argued that TI's 300mm factories would become a cost advantage as industrial demand recovered. Our August update, “Texas Instruments Q226: Slowly but surely”, set three tests: unit-led growth with stronger margins, FY2027 capex discipline, and Silicon Labs integration. Q3 passed the first, with capex and acquisition execution still needing confirmation.

The 300mm investment is becoming an earnings advantage

TI built capacity ahead of the recovery, so depreciation initially weighed on margins. As volumes rise, fixed costs are spread across more chips. Q3's 64.2% gross margin already exceeds the 62.8% full-year margin we forecast for FY2028 in August.

Margins depend on what TI produces, not only what it sells. TI can meet immediate customer demand from its existing inventory while progressively increasing factory output; inventory still edged up from about USD4.61bn in Q2 to USD4.67bn in Q3 despite stronger sales. Higher utilisation and improved cost absorption should therefore support earnings growth as demand strengthens. Depreciation from new tools, product mix and seasonality can still move margins, but Q3 suggests that even if our forecast is wrong, it's probably too conservative.

Inventory investments position TI to regain market share

TI's decision to invest through the analog downturn is positioning it to regain market share. TI's share of global analog revenue declined from around 20% in 2020–21 to approximately 15% in 2024, before recovering towards 17% in 2026, with UBS forecasting 19% by 2027. We believe this recovery reflects TI's manufacturing and inventory investments during a period when competitors were reducing spending. TI maintained annual capex of USD4.5–5.1bn throughout FY2023–25 to expand its 300mm manufacturing network, while ADI reduced annual spending from USD1.26bn to USD0.53bn.

TI's inventory strategy provides a second advantage. At end-3Q26, TI held USD1.69bn of finished goods, equivalent to approximately 72 days of quarterly production costs, compared with around 27 days for ADI and 35 days for NXP based on their latest filings. Combined with its available manufacturing capacity, this larger buffer allows TI to respond to recovering demand and commit future supply while competitors face longer lead times. Meanwhile, TI's total inventory days declined from 222 at end-2025 to 194 in Q3, while finished goods fell from USD1.97bn to USD1.69bn, indicating that stronger demand is helping absorb inventory accumulated.

Figure 2: TI's larger inventory buffer provides greater supply flexibility as analog demand recovers

Management confirmed that industrial and data-centre customers have approached TI to secure components while facing shortages elsewhere in their supply chains. While this does not necessarily represent market-share gains, TI's supply reliability could strengthen customer relationships and create opportunities for new design wins. Its 300mm manufacturing cost advantage also allows TI to remain price-competitive as industry supply normalises. We believe the longer-term opportunity lies in securing additional positions in customer designs, as analog components often remain in production for years. However, some supply-driven demand could normalise as competitors recover, making sustained above-market growth and new design wins critical to confirming whether TI can retain its market-share gains.

Higher semiconductor content extends growth beyond the cycle

Data centres were a pillar of our May thesis, and Q3's near-doubling of data-centre revenue supports it. Higher-power AI racks need more voltage conversion, control, sensing and protection alongside GPUs, and TI's analog portfolio and 800V power work position it to compete. The opportunity comes from more chips per rack, not just more data centres.

Mizuho expects AI data-centre power to rise from 3% of the global analog market in 2025 to 12% in 2028 and 26% by 2030, a runway beyond our original forecast horizon. Adoption may be delayed and competitors also supply high-voltage stages, so we watch for TI-specific design wins and higher-voltage rollout schedules.

Industrial applications offer growth beyond a cyclical rebound. Factory automation, robotics and grid upgrades need more sensors, controllers and power-management chips, so TI benefits from both higher equipment output and rising chip content per system, making growth less dependent on the industrial cycle.

Figure 3: Analog semiconductor market and AI data-centre power share

Cash conversion and Silicon Labs remain the final tests

The cash-flow recovery is underway. Over the latest 12 months, TI generated USD9.90bn of operating cash flow and spent USD2.58bn on capex, leaving about USD7.32bn of conventional FCF. February's FY2027 capex framework is a key catalyst for how much of the higher operating profit reaches FCF.

We remain positive on the logic of acquiring Silicon Labs. TI plans to move selected products from external foundries into its 300mm facilities, targeting more than USD450mn of annual synergies within three years of closing. Chinese regulatory clearance, the USD7.5bn cash payment and integration remain ahead, and TI ended Q3 with around USD13.65bn of debt after repaying USD500mn. Product migration, savings and deleveraging will determine whether the deal creates lasting value.

Key risks

AI funding is the main risk. October's chip sell-off reflected doubts over how hyperscalers will fund AI spending, and a capex slowdown would delay the 800V ramp, though management has yet to see one. China’s regulator could delay or condition the Silicon Labs deal, and its anti-dumping probe into US interface and gate-driver chips, where TI is the most exposed US supplier, remains unresolved.

Valuation: maintain BUY; TP raised to USD 391

Following stronger-than-expected margin conversion in Q3 and upward revisions to our Analog revenue forecasts, we raise our FY2028E EPS to USD12.62 from USD11.17 in our May initiation. We maintain our BUY call and raise our end-2028 target price to USD391 from USD346, implying approximately 27% upside from USD308.91.

TI has historically commanded a premium to its analog peers. Its current 12-month forward P/E of 27.4× compares with 25.8× for ADI, 18.1× for Infineon, 19.7× for STMicroelectronics and 14.2× for NXP. We believe this reflects TI's established analog franchise, extensive customer relationships and greater control over manufacturing costs and supply. While competitors also have access to 300mm manufacturing, TI differentiates itself through the scale of its internally owned 300mm analog production network.

Table 5: TI's P/E premium to analog peers

Company	Current forward P/E	5-year average
Texas Instruments	27.4×	26.3×
Analog Devices	25.8×	24.0×
Infineon	18.1×	17.7×
STMicroelectronics	19.7×	17.7×
NXP	14.2×	15.2×
Source: Bloomberg Finance L.P., iFAST Compilation. Data as of 27 October 2026.

We retain our 31x fair P/E. This premium is justified as the 300mm network lifts returns and AI and industrial content extends growth beyond the cycle. We forecast revenue growth of 18.5% in FY2027 and 16.0% in FY2028. EPS growth accelerates from 16.0% to 20.5% as Silicon Labs integration charges fall away and margins expand further.

Table 6: Valuation

	FY25A	FY26E	FY27E	FY28E
Revenue (USD mn)	17,682	22,393	26,539	30,778
Revenue growth YoY	13.0%	26.6%	18.5%	16.0%
EPS (USD)	5.67	9.03	10.47	12.62
Earnings Growth YoY	11.4%	59.3%	16.0%	20.5%
Implied P/E	32.0x	34.2x	29.5x	24.5x
Current Price (USD)				308.91
Upside Potential (31x fair P/E)				26.7%
Target Price (USD)				391
Source: Bloomberg Finance L.P., iFAST Compilation. Data as of 27 October 2026.