Texas Instruments Stock: It Beat, Raised Guidance — and Still Fell. Why We Say HOLD (TXN Q2 2026)

Texas Instruments (TXN) Q2 2026 — Texas Instruments (TXN), the world's largest maker of analog chips, reported a clean beat-and-raise for Q2 2026: GAAP EPS of $2.14 topped the ~$1.91 estimate (+52% YoY) on revenue of $5.46B (+23% YoY), gross margin expanded to 61.4% (+347 bps) and operating profit jumped 48% to $2.31B (42% margin). Analog grew 26% to $4.37B (46% operating margin) and Embedded Processing rose 16%. A broad cyclical upturn drove it: industrial +30%, data center roughly doubled, auto inflected on China EV demand. Trailing free cash flow surged 271% to $6.5B (34% of sales) as the 300mm fab capex wave rolled off to a $2-3B/yr pace. Management guided Q3 revenue to $5.65-6.15B and EPS to $2.23-2.57, above the Street. Yet the stock — up ~90% off its $153 low to ~$294, near its $332 record — slipped after the print. The catch: at ~34x forward earnings and a 2.4% FCF yield, even our optimistic compounder DCF lands near $235. Our call: HOLD. Texas Instruments is the bluest of blue-chip chipmakers — the world's #1 maker of analog and embedded chips, the humble, high-margin silicon inside almost every electronic device. Q2 2026 was a genuinely strong quarter: GAAP EPS of $2.14 beat the ~$1.91 estimate (+52% YoY), revenue rose 23% to $5.46B, gross margin expanded to 61.4% (+347 bps) and operating profit surged 48% to $2.31B (a 42% margin). The driver was a broad cyclical upturn — industrial +30% YoY, data center roughly doubled, and automotive inflected higher led by China EV demand — after two years of brutal downturn. The number bulls love: trailing free cash flow up 271% to $6.5B (34% of sales), as TI's multi-year 300mm fab capex wave rolls off to just $2-3B/yr (last quarter capex fell below depreciation). Management guided Q3 revenue to $5.65-6.15B and EPS to $2.23-2.57, above the Street. So the debate isn't quality — it's price. The stock has run ~90% off its $153 low to ~$294, near its $332 record, and actually slipped after this clean beat. At ~34x forward earnings and a 2.4% FCF yield, TI is priced for perfection — and part of the FCF surge is CHIPS Act cash (~$1.6B TTM), not pure earnings power. Even leaning to the optimistic compounder path (11% FCF growth) with a premium 9% discount rate, our owner-earnings DCF lands fair value near $235 — about 20% below the price. Our call: HOLD, 3/5. A world-class franchise with no margin of safety, and we're more cautious than the Street's ~$298 average target (which itself implies just +1% upside). Add on real weakness toward the low $200s. Not financial advice. THE CALL: HOLD (3/5, A GREAT FRANCHISE AT A FULL PRICE — A CLEAN BEAT-AND-RAISE WITH NO MARGIN OF SAFETY) — base-case value ~$235 vs ~$294 today. What to watch: evidence this is a long, secular up-cycle rather than an ordinary one — broadening industrial and automotive content growth, TI's new price increases sticking, and free cash flow marching toward management's $8-9/share framework — which would justify the premium multiple and prompt an upgrade; the risk to respect is the semiconductor cycle rolling back over (orders cooling, inventories rebuilding, China softening), which at ~34x forward earnings and a 2.4% FCF yield could re-rate the stock hard Also on YouTube: @ChargedAlpha DISCLAIMER: For informational and educational purposes only. Not financial advice. Do your own research before any investment decision.