Texas Instruments: Limited Upside and Profitability Constraints Justify Underperform Rating Despite Near-Term Beats

In a report released yesterday, Vivek Arya from Bank of America Securities maintained a Sell rating on Texas Instruments, with a price target of $185.00.

Vivek Arya has given his Sell rating due to a combination of factors related to Texas Instruments’ fundamentals and valuation. While he anticipates that the company will likely exceed near-term revenue and EPS expectations for Q4 and guide Q1 in line with typical seasonal patterns, he sees these beats as already reflected in current estimates and the share price. He underscores that high inventory levels, constrained gross margin upside, and management’s cautious stance on increasing factory utilization limit Texas Instruments’ ability to expand profitability meaningfully in the near term. In addition, although free cash flow per share is expected to improve as capital spending normalizes and inventory unwinds, he notes that the stock already trades at a free cash flow multiple comparable to Analog Devices despite generating a smaller percentage of free cash flow relative to sales.
At the same time, Arya points out that the emerging data center and AI-related business, despite growing rapidly and having attractive long-term optionality, remains a relatively small contributor to overall revenue compared with peers. He also highlights that higher depreciation expense in coming years will weigh on gross margins, further restricting earnings leverage even as end-market demand gradually recovers. Taken together, these elements lead him to conclude that Texas Instruments offers limited upside versus its current valuation and faces profitability constraints that justify an Underperform (Sell) stance. Accordingly, he maintains a price objective below the prevailing market price, reflecting his view that risk-reward remains unfavorable for new or incremental investment in the shares.