Texas Instruments stock has seen a modest rise of about 7% year-to-date, lagging behind the broader Nasdaq-100, which has increased by almost 10% over the same period. The company experienced a decline in sales of about 16% year-over-year in the first quarter, with earnings also taking a hit due to weaker sales of analog semiconductors and embedded products. Texas Instruments’ product lineup is more reliant on macroeconomic factors compared to other parts of the semiconductor industry, leading to challenges as major customers reduce purchases. The automotive sector, one of the company’s key markets, saw a decline in revenue as customers worked through existing inventory levels and the pace of 5G deployment in the communications equipment sector cooled off.
Despite some headwinds, Texas Instruments remains optimistic about its future prospects, with expectations of earning between $1.05 and $1.25 per share in the second quarter. The company foresees sales between $3.65 billion and $3.95 billion for the quarter, with semiconductor content expected to grow steadily in industrial sectors as automation gains momentum. The automotive sector is also anticipated to experience strong growth driven by connected and self-driving vehicles. Texas Instruments has invested significantly in expanding its 300mm wafer fabrication capacity in the U.S, aiming to reduce geopolitical risks and enhance long-term competitiveness. The industrial and automotive sectors collectively accounted for about 75% of TI revenue in 2023 and have been expanding at an annual rate of 10% since 2013.
TXN stock has seen minimal change over the past few years, moving from levels of $165 in early 2021 to around $180 currently, compared to a 40% increase for the S&P 500 over the same period. The stock’s performance in terms of index benchmarks has been lackluster, with returns of 15% in 2021, -12% in 2022, and 3% in 2023. In comparison, the S&P 500 had returns of 27% in 2021, -19% in 2022, and 24% in 2023, indicating that TXN underperformed the index in 2021 and 2023. The Trefis High Quality Portfolio, comprised of 30 stocks, has outperformed the S&P 500 each year over the same period, providing better returns with less risk. As Texas Instruments faces a volatile macroeconomic environment with high oil prices and elevated interest rates, it remains to be seen whether the company will be able to outperform the S&P over the next 12 months.
Overall, Texas Instruments stock trades at around 45x forward earnings, which is considered slightly high. Trefis values the company at about $175 per share, slightly below the current market price of $182. The company’s margins have faced pressure, with a contraction of gross margins in the previous quarter. The company’s stock performance has underperformed compared to index benchmarks, making it challenging for individual stocks, including heavyweights in the Information Technology sector, to consistently beat the S&P 500. Texas Instruments remains focused on key growth areas such as industrial and automotive sectors and making strategic investments to enhance long-term competitiveness and reduce risks.