Texas Instruments’ industrial revenue hits a record: why does JPMorgan still see the cycle rising?
Third-quarter revenue and gross margin, as well as fourth-quarter guidance, exceeded market consensus. JPMorgan believes industrial, automotive and data-center growth is occurring simultaneously, while customer restocking has yet to begin; further upside in 2027 comes from price increases and higher capacity utilization, while expansion spending depends on demand strength.
Original source：J.P. MorganFirst published on Unhidea：Original source date：
Key takeaway
JPMorgan believes record industrial revenue does not mean the cycle has peaked: end demand, subsequent restocking and pricing power amid tightening supply could together support Texas Instruments’ revenue and profit growth in 2027.
Where was the strength in this earnings beat?
Texas Instruments reported third-quarter 2026 revenue of 6.055 billion dollars, up about 28% year over year and about 11% sequentially, above the market consensus of 5.926 billion dollars. It outperformed seasonal patterns for the ninth consecutive quarter. Growth came from simultaneous strength in industrial, automotive and data centers.
Profit upside was more pronounced: gross margin was 64.2%, above the consensus of 61.8%; earnings per share including stock-based compensation expense were 2.62 dollars, above the consensus of 2.41 dollars. About 90% of incremental revenue converted into incremental gross profit, driven mainly by higher volumes, with small contributions from pricing and product mix.
The midpoint of the company’s fourth-quarter revenue guidance was 6.05 billion dollars, broadly flat sequentially, stronger than the usual seasonal sequential decline of approximately mid-single digits and above the consensus of 5.73 billion dollars. The midpoint of earnings-per-share guidance was 2.62 dollars, versus consensus of 2.26 dollars.
Industrial revenue is already at a record. Why is this not yet the cycle’s peak?
Third-quarter industrial revenue rose about 40% year over year and about 10% sequentially, reaching a record high for the first time in four years. JPMorgan believes this reflects both a cyclical recovery and increases over the past four-plus years in chip content and value per piece of equipment; subsegments such as industrial automation remain below previous peaks.
The bank believes customer restocking has yet to begin, so current growth is primarily supported by end demand, with subsequent restocking potentially adding another layer of demand. Automotive revenue growth has accelerated to approximately the mid-double digits year over year and rose about 10% sequentially. Demand in China and for electric vehicles is driving growth, while inventories at tier-one suppliers and automakers remain at levels the bank considers unsustainably low.
Customer inventories and Texas Instruments’ own inventory should be considered separately: the company’s third-quarter inventory stood at 194 days, down slightly from 196 days in the second quarter and within its target range of 150–250 days.
How much can data centers add to growth?
Third-quarter data-center revenue rose about 95% year over year and about 20% sequentially, accounting for approximately 13% of total revenue. Annualized revenue based on the quarter exceeded 3 billion dollars; approximately ten thousand general-purpose product models are shipping, and early application-specific chip projects are also gradually ramping up at Sherman.
JPMorgan expects the business’s exit annualized revenue to exceed 3.5 billion dollars at the end of 2026 and believes its growth rate in 2027 could track overall data-center capital spending growth, which it assumes will rise 70%. This projection depends on continued expansion of customer capital spending and the ramp-up of related products.
How do price increases and capacity advantages translate into profit?
Management confirmed that, after prices were flat in the first half of 2026, they began to contribute modestly to growth in the second half, mainly through analog chips. Price negotiations for 2027 have begun; JPMorgan believes tightening capacity at competitors makes customers more willing to pay for supply assurance, and the contribution from price increases could exceed its prior model.
Higher factory utilization, price increases and an improved product mix form the bank’s path to further gross-margin expansion. The third-quarter gross margin of 64.2% was still below the historical cyclical peak of nearly 70%, but the implied fourth-quarter gross margin is approximately 64% or higher, mainly remaining at its current level in the near term.
The LFAB2 and Sherman 2 facilities are largely ready for equipment to be installed as demand requires, and increasing supply flexibility also requires investment. The company expects 2026 capital spending near the upper end of the 2 billion–3 billion dollar range. Management said that revenue growth moving from 10% toward the mid-double digits would support higher capital spending, and the 2027 framework will be announced in January of the following year.
How do these changes feed into earnings forecasts and the price target?
JPMorgan raised its adjusted earnings-per-share forecasts for 2026 and 2027 from 9.11 and 11.42 dollars to 9.52 and 12.25 dollars, respectively, maintained its Overweight rating and increased its December 2027 price target from 340 to 365 dollars.
The price target applies a price-to-earnings multiple of approximately 27 to the bank’s 2028 earnings-per-share forecast of 13.48 dollars. Its assessment depends on a sustained demand recovery and stable market share; if the global economic recovery is weaker than expected, or the analog and embedded businesses experience significant market-share losses, revenue and earnings forecasts will come under pressure.
