Texas Instruments: A 40x P/E That Drops to 28x Forward
Texas Instruments trades around $266.64 as I write this, at 40.5 times trailing earnings. That is well above its own five-year average of 28.1. On forward estimates the multiple drops to 27.9, below that average. A gap that wide between trailing and forward P/E usually means one thing: earnings are still catching up to a recovery that has already started in the numbers underneath them.
Texas Instruments makes analog chips, the parts that manage power, sensing and signal conversion in almost every electronic device that is not an AI accelerator. The business is cyclical because its two biggest end markets, industrial and automotive electronics, order in batches tied to their own inventory cycles rather than steady consumer demand. When those customers over-order and then stop buying to work through the excess, TI’s revenue swings hard in both directions. That swing is most of this story.
Consumer electronics customers typically destock fast and reorder fast too, because their own sales cycles are short. Industrial and automotive buyers move slower in both directions. They carry more inventory as a cushion against their own production schedules, so a downturn in those two markets tends to run longer than a typical consumer-driven chip cycle, and the recovery arrives in stages rather than all at once. That is the pattern visible in TI’s own revenue history over the last four years, and the numbers below show it plainly.
Revenue already turned, profit is still behind
Full-year revenue fell from $20.0 billion in 2022 to $15.6 billion in 2024, the trough year of this cycle, then recovered to $17.7 billion in 2025, up 13%. The most recent quarter came in at $5.5 billion, up 23% year over year and 13% sequentially, putting the trailing run rate near $21.9 billion. That is not a soft recovery. A 23% year-over-year quarter is the kind of number that shows up when industrial and automotive customers move from destocking to reordering at the same time.
Net income for the year was $5.0 billion, a net margin of 28%, against $4.8 billion the year before. Operating margin sits at $6.1 billion of operating income on that revenue base, or 35%, with gross margin at 57.0%, down slightly from 58.1%. Profit is growing. It is growing more slowly than the headline P/E of 40.5 would suggest is deserved, and that lag between a recovering top line and a trailing earnings base still weighed down by the trough is exactly why the multiple looks stretched on paper.
Forward estimates tell the rest of it. Analysts expect earnings per share near $9.55, up roughly 45% from the trailing $6.58. That is an aggressive number. If it lands, 27.9 times forward earnings is a reasonable price for a company with TI’s margins. If it does not, the stock is back to being expensive on both counts, and that is my one explicit uncertainty here.
The capacity bet behind the recovery
TI has spent years building its own 300-millimeter wafer fabs in the United States rather than relying on outside foundries, the way most of the analog chip industry does. That bet started paying off in a visible way in December 2025, when the company began production at its newest fab, SM1, at its Sherman, Texas site, according to TI’s own announcement. TI has described plans for up to four connected fabs at that one site as part of a manufacturing investment the company has put at more than $60 billion across its US plants.
Owning production at scale should give TI a cost edge over analog rivals that pay foundry margins on every wafer, once utilization climbs. Right now the spending sits ahead of demand, which is part of why free cash flow and margins look worse than the revenue trend alone implies. I wrote about a similar pattern of near-term investment ahead of demand when discussing Microsoft’s spending against its margin story, a different industry with the same tension between capex now and payoff later.
The risk with this bet is straightforward. If industrial and automotive demand plateaus before utilization at the new capacity climbs high enough to offset the fixed cost of running it, TI ends up with more owned capacity than it needs for a few years, and margins stay pressured for longer than the current forward estimates assume. That is the concrete case against the recovery story, not just a general caution.
There is a timing detail here too. Production at SM1 only started in December 2025, which means the fixed costs of running that plant barely touched the 2025 results now sitting in the trailing P/E. The next several quarters will show whether unit volume from Sherman ramps fast enough to spread those fixed costs across more chips, which is the mechanism that is supposed to turn owned capacity into a cost advantage instead of a drag. I would not assume that happens on the timeline the forward multiple implies just because management has said it will.
What 21 analysts actually think
Twenty-one analysts cover the stock, and 62% rate it a Buy, a meaningfully lower consensus than a name like Ecolab or Medtronic gets from their own coverage lists. The average target is $336, 26% above the current price, but the range runs from $225 to $405, meaning the low-end target implies -16% downside from where the stock trades now, not upside at all. That spread is wider than almost anything I have covered on this site, and it reflects genuine disagreement about whether the 45% earnings growth baked into the forward multiple actually shows up on schedule.
The stock’s own price action backs up that disagreement. Options pricing implies an average post-earnings move of 9.5%, one of the larger swings among large-cap names I follow, and the last report, on 2026-07-22, still sent the stock down -3.1% despite the revenue growth described above. A double-digit expected swing and a decline on a quarter with 23% growth tells me the market is not simply rewarding a recovering top line. It wants that revenue to show up in reported profit first.
Underneath the disagreement, one signal has already turned. TI’s quant grade moved from D to B over the period I am looking at, an upgrade that lines up with the improving revenue trend rather than the still-high trailing P/E. Short interest, at 2.3% of the float, is low. Few traders are positioned against the recovery story even while the average analyst target implies meaningful upside from here.
Compare that 62% Buy rate to Alphabet’s own valuation gap against Microsoft, where the disagreement was mostly about which multiple was right, not about whether the earnings were real. TI’s disagreement runs deeper: a meaningful share of the sell-side thinks the current price already assumes more of the recovery than has actually shown up in reported profit. Price-to-sales backs that reading up. TI trades at 12.4 times sales now versus a five-year average of 9.7, and price-to-book sits at 13.4 against a five-year average of 11.1. Both multiples run above their own history, even with the forward P/E discount. That is unusual for a stock this far off its 52-week high of $332, 19.8% below it as I write this, and it tells me the market has already given TI credit for the recovery on every measure except trailing earnings.
| Metric | Value | Context |
|---|---|---|
| Trailing P/E | 40.5 | vs five-year average 28.1 |
| Forward P/E | 27.9 | implies about 45% EPS growth |
| Revenue growth (FY2025) | 13% | recovering from 2024 trough |
| Latest quarter growth | 23% | year over year |
| Analyst target range | $225 to $405 | average $336, 26% upside |
| Quant grade | B | was D |
Every number in that table points the same direction. Trailing earnings are the outlier.
The dividend held through the whole cycle
TI raised its quarterly dividend 4% to $1.42 per share in September 2025, marking 22 consecutive years of increases, according to the exhibit filed with the SEC announcing the raise. The trailing payout now sits at $5.62 per share, a yield of 2.11% at the current price. That the raise came during the trough year of this cycle, not after the recovery was visible, tells me management was already confident in the normalized earnings power behind the capacity spending, well before the 23% growth quarter showed up in the reported numbers.
I would put TI in the same bucket as Cintas trading at 40 times earnings: a premium multiple that only makes sense if growth compounds through the next several quarters rather than stalling out. The difference is that Cintas’s growth is steady and TI’s is cyclical, which makes the forward multiple more of a bet on timing than on the business model itself.
The number that would settle it
What I want to see before treating 40.5 times trailing earnings as reasonable is two more quarters of double-digit revenue growth alongside operating margin moving back above 35%, not just below it as capacity spending peaks. If that happens, the 27.9 forward multiple looks like the real price of the stock and the trailing number becomes irrelevant, the way the market already priced Starbucks’s recovery ahead of its reported numbers. If revenue growth stalls back toward flat while the Sherman fabs keep drawing capital, the bull case unwinds fast, because a 40 times trailing multiple has no cushion left if the forward earnings estimate slips.
Analysis and opinion only, not investment advice. Figures come from Texas Instruments’ filings on SEC EDGAR and its investor relations site, with the Sherman fab detail drawn from TI’s own newsroom and the dividend history from its SEC filings; valuation multiples are approximate and were checked on September 22, 2026.
Sources: Dividends (SEC Investor.gov glossary) (https://www.investor.gov/introduction-investing/investing-basics/glossary/dividend) · Dividends tax topic (IRS) (https://www.irs.gov/taxtopics/tc404)