Texas Instruments TXN, a leading player in the analog, mixed-signal and digital signal processing integrated circuits space, has seen its shares plunge 10.9% in the past six months.

TXN stock has underperformed the Zacks Computer and Technology sector and the S&P 500 index’s decline of 4.5% and 1.6%, respectively, in the past six months. TXN stock has also underperformed its industry peers, including NVIDIA NVDA, STMicroelectronics STM and Intel INTC.

Six-Month Price Return Performance

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Reason Behind TXN’s Underperformance

TXN’s underperformance highlights challenges stemming from weakness in its industrial, automotive and enterprise systems end markets. The industrial and automotive markets, which together account for 70% of Texas Instruments’ revenues, experienced modest sequential declines in the fourth quarter of 2024.

Furthermore, TXN’s Embedded Processing segment, which has contributed more than 15% to its total revenues in the past five years, is facing the industry’s cyclicity resulting in decreased sales.

Margins of the Embedded Processing segment are also under pressure as TXN expands its Lehi facility in Utah with the construction of a second fabrication facility, LFAB2, which will be integrated with the existing LFAB1. This expansion has led to underutilization of the entire Lehi factory, which primarily supports Embedded Processing products.

Investors are also spooked by the U.S. government’s stance toward China and have been concerned about its negative impact on TXN’s business. Texas Instruments is significantly exposed to the Chinese market, which accounted for approximately 20% of its 2024 revenues. Rising geopolitical tensions and potential trade restrictions amid the U.S.-China face-off can potentially impact the future TXN’s performance.

Nevertheless, it's not all gloom and doom for Texas Instruments investors, as the company is actively implementing measures to drive a rebound.

TXN’s Road to Recovery: Key Strategies for Growth

While the industrial and automotive markets remain stagnant, TXN is strategically building its inventory, maintaining a healthy level of $4.5 billion. This inventory will enable the company to swiftly meet customer demand once the market rebounds, avoiding the need for a sudden production ramp-up.

Furthermore, TXN recently received $1.6 billion in CHIPS Act funding from the U.S. government. This funding will support new 300mm wafer fabs in Texas and Utah, strengthening TXN’s position as a dependable supplier of analog and embedded chips.

Texas Instruments also tapped into the edge AI space with the launch of TMS320F28P55x Series with an integrated Neural Processing Unit. As the edge AI market grows, as projected in a Fortune Business report, TXN will have increasing opportunities to expand in this space. According to the report, the global edge AI market is expected to reach $269.82 billion by 2032, with a CAGR of 33.3% from 2024 to 2032.

The Zacks Consensus Estimate for TXN’s 2025 revenues is pegged at $17.1 billion, indicating year-over-year growth of 9%. The consensus mark for earnings is pegged at $5.35 per share, suggesting a 2.9% year-over-year increase.

Texas Instruments beat the Zacks Consensus Estimate in each of the trailing four quarters, with an average surprise of 8.9%.

Find the latest EPS estimates and surprises on Zacks Earnings Calendar.

Conclusion: Hold TXN Stock for Now

Although Texas Instruments is grappling with softness across its industrial, automotive and enterprise systems end markets, the company is taking this time to maintain healthy inventory levels and establish new manufacturing units. Once the cyclical downturn across its major segments subsides, TXN will rebound. 

The U.S. government’s $1.6 billion in CHIPS Act grant and TXN’s entry into the edge AI space are added upsides for this Zacks Rank #3 (Hold) stock. Considering all these factors, we recommend that investors should retain this stock at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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