Wolfe Research upgrades Texas Instruments to outperform, sees cyclical recovery ahead

CNBC

3 days ago

Wolfe Research is ready to jump back into Texas Instruments . The investment firm upgraded the semiconductor stock to an outperform rating from peer perform. Analyst Chris Caso accompanied the move by also establishing a price target of $230, implying an upside of 24% from the stock's Friday close. Shares of Texas Instruments are down 1% this year. Caso noted that Texas Instruments has "significantly underperformed" stock benchmarks since early 2022, when it introduced a multiyear capital expenditures expansion plan. TXN YTD mountain TXN YTD chart Now, however, the company is also nearing the end of its multiyear capital expenditures cycle. This could soon begin driving free cash flow and gross margin growth. "TXN's accelerated investment cycle is nearing an end — CapEx is expected to drop to $2-5bn in CY26 from $5bn/yr 2023-2025. Spending in CY27 will depend on expected revenue growth. We note that TXN's CapEx was accelerated in order to take advantage of US govt incentives (Chips Act grants and tax credits), which end in 2026," Caso wrote. "We anticipate that TXN's FCF of ~$2bn in CY24 (including $588mn cash benefit from ITC credit) will rise to > $9bn by CY27." Caso also expects the analog chip industry is on the cusp of a cyclical recovery, with Texas Instruments positioned to benefit. "Customers appear to have stopped cutting inventory, a signal in our view that the upcycle is likely to emerge in short order," the analyst added.