Original source：Evercore ISIFirst published on Unhidea：Original source date：
Key takeaway
Analog chips drove revenue growth, while fab fixed-cost leverage and lower capital spending further boosted profits and free cash flow. Evercore ISI, however, believes the stock’s muted reaction is consistent with its view that the semiconductor cycle is in its later stages.
Where did third-quarter results exceed expectations?
Texas Instruments reported third-quarter 2026 revenue of $6.055 billion, up 11% sequentially and 28% year over year, approximately 2% above market consensus. Gross margin was 64.2%, 2.6 percentage points above consensus.
Earnings per share were $2.62, exceeding company guidance by $0.22 and market consensus by $0.18. Management noted that the result included a $0.01 per-share deduction that had not been included in the original guidance.
Why did analog chips drive margin expansion?
Third-quarter analog revenue was $4.911 billion, up 32% year over year and accounting for 90% of the company’s year-over-year revenue increase; the business’s operating margin rose from 40% to 51%.
Company-wide revenue rose 28% year over year, while cost of revenue increased just 7%. On that basis, Evercore ISI calculated a year-over-year incremental gross margin of 89%, reflecting the dilution of fab fixed costs as revenue grows.
Embedded processing revenue was $858 million, up 21% year over year; other revenue was $286 million, down 6% year over year.
What changes drove the improvement in cash flow?
Third-quarter inventory increased just 1% sequentially, while revenue grew 11% over the same period; inventory days fell from 196 days in the previous quarter to 194 days.
Quarterly capital expenditure fell 61% year over year to $463 million, helping free cash flow rise to 49% of revenue for the quarter.
What are the fourth-quarter guidance and the analyst’s assessment?
The midpoint of the company’s fourth-quarter revenue guidance was $6.05 billion, consistent with seasonal trends and 5% above market consensus; the implied gross margin was 63.8%, 3.24 percentage points above consensus.
The midpoint of fourth-quarter earnings-per-share guidance was $2.62, $0.31, or 14%, above market consensus.
After the results and guidance were released, the stock rose approximately 1% in after-hours trading. Evercore ISI believes this muted reaction is consistent with its view that the semiconductor cycle is in its later stages; the firm remains optimistic about Texas Instruments’ ability to expand its market share over the long term and assigns an Outperform rating and a $330 price target.
The price target is based on the firm’s 2028 base-case free cash flow of approximately $16 per share, applying a 25 times multiple and discounting the result back to 2026.
