Texas Instruments FY26: 300mm strategy

Executive Summary

We initiate coverage of Texas Instruments Incorporated (NASDAQ: TXN) with a BUY rating. Our price target of USD 346 (vs the current price of USD 269) is set on a three-year basis, applying a 31x fair P/E to our FY2028e EPS estimate of USD 11.17.

Figure 1: Texas Instruments 5-year share price performance

Business Description

Texas Instruments Incorporated, founded in 1930 and headquartered in Dallas, Texas, is a global semiconductor company designing, manufacturing, and selling analog and embedded processing chips. With a product portfolio exceeding 80,000 unique items and no single customer accounting for more than 10% of revenue, TI is the most broadly diversified analog semiconductor franchise globally.

The company's strategic priority: internally owned, domestic US manufacturing is unique among semiconductor peers and creates a durable cost and supply-chain sovereignty advantage that competitors cannot replicate quickly.

Business Segment

• Analog Segment (~79% of FY2025 revenue, USD 14.0 billion): Power and Signal Chain products. Power ICs manage voltage and current across virtually all electronic systems. Signal Chain products sense, condition, and convert real-world signals into processable data. Industrial automation, automotive electrification, and AI data centre power management are the fastest-growing applications. This segment generates the highest operating margins in TI's portfolio (~41–42% at mid-cycle utilisation). Revenue grew +16.4% y/y in FY2025.

• Embedded Processing (~15% of FY2025 revenue, USD 2.7 billion): Microcontrollers, digital signal processors, wireless connectivity, and radar sensors. This segment lagged the Analog recovery but accelerated to approximately +12% y/y in Q1 2026. The pending Silicon Labs acquisition will substantially expand this segment's wireless connectivity capabilities.

• Other (~5% of FY2025 revenue): DLP projectors, calculators, and legacy ASICs. Not a strategic growth driver; revenue declined approximately 16% y/y in Q1 2026.

Figure 2: Business segment contribution in FY2025

Q1 2026 results & 300mm manufacturing Strategy

Q2 2026 guidance: revenue USD 5.0–5.4 billion (~7% above prior consensus). Management noted industrial recovery remains broad-based across all sectors, geographies, and customer sizes. Data centre delivered its eighth consecutive sequential quarter of revenue growth. CEO Ilan: "Industrial remains ~15% below 2022 peak levels."

Table 1: Q1 2026 Actual result vs prior year and consensus

(USD mil)	Q1 2026	Q1 2025	y/y	vs Consensus
Revenue	4,825	4,069	18.6%	Beat: +305M (+7%)
Gross Profit	2,799	2,313	21.0%	Gross margin 58.0% (+210bps)
Operating Income	1,808	1,324	36.6%	Operating margin 37.5%
Diluted EPS	1.68	1.28	31.3%	Beat: +0.30 vs ~1.38 consensus
Trailing 12M FCF	4,351	1,715	154.0%	FCF/share 4.77 trailing 12M
CAPEX (Q1 only)	676	1,179	-43.0%	CAPEX step-down confirms FY26 guidance

Source: Bloomberg Finance L.P., iFAST Compilation, Data as of 30 Apr 2026.

The most consequential technology decision of the past six years is TI's 300mm wafer fabrication buildout. Production at the Sherman, Texas SM1 facility commenced December 2025, marking the final major construction milestone of a USD 25+ billion multi-year investment.

The economics are decisive: 300mm wafers yield approximately 2.5× more die area per wafer versus 200mm at equivalent lithography, translating to 20–40% lower cost per chip at full utilisation, a structural cost advantage that expands materially as utilisation rises.

As Phase 3 modular expansion proceeds, equipping installed capacity as demand grows, the incremental capacity is added at near-zero additional capital cost.

Figure 2: Illustration of GPM impact from 300mm

Source: Texas Instruments, iFAST Compilation, Data as of 2025 Annual Report.

Combined with the CHIPS Act, which provides TI approximately USD 1.6 billion in grants and tax incentives over 2025–2028, domestic 300mm manufacturing reinforces a structural cost and supply-chain advantage  that is difficult for foreign competitors to replicate at scale.

On top of that, the Silicon Labs acquisition (USD 7.5 billion, announced February 2026) is TI's largest strategic action since the National Semiconductor acquisition in 2011. The financial case is anchored primarily in manufacturing economics: by migrating Silicon Labs products from expensive external foundries to TI's underutilised 300mm facilities, management expects greater than USD 450 million in annual cost synergies within three years of closing. Only 10–15 key die designs require porting, limiting execution risk.

Figure 3: Executed 300mm capacity

Source: Texas Instruments, iFAST Compilation, Data as of 2025 Annual Report.

Investment thesis

1)      Free Cash Flow Inflection

The single most important financial event for TI shareholders over the next 24 months is the free cash flow expansion.

Between FY2021 and FY2025, TI invested approximately USD 25 billion in capital expenditure to build its 300mm domestic fabrication network, compressing FCF margins from a historical 30–40% range to a trough of approximately 8% in FY2023–24.

With the construction phase complete, capital expenditure is guided at only USD 2.0–3.0 billion in FY2026, our estimate is USD 2.5 billion, down from USD 4.55 billion in FY2025. This step-down, combined with rising revenues and improving gross margins, drives a sharp FCF inflection, which our model projects as follows:

Figure 4: FCF per share and FCF margin (%), actual and estimate

2)      Industrial Recovery

Q1 2026 industrial revenue grew more than 30% y/y and more than 20% q/q described by management as the broadest recovery quarter of the current upcycle, with growth across all sectors (energy, automation, aerospace, healthcare), all geographies, and all customer sizes.

Critically, industrial remains approximately 15% below the 2022 peak, confirming the recovery is mid-cycle rather than late-stage.

Our model assumes industrial revenue grows at an approximately 3-year CAGR of 12.8%, which we consider conservative given the trajectory of H1 2026 confirmed by management's Q2 guidance of USD 5.0–5.4 billion.

Figure 5: Industrial segment earnings actual (blue) and estimates (red)

3)      Data Centre: A Structural New Revenue Pillar

Three years ago, data centre was immaterial in TI's revenue mix. Today it contributes approximately 10–11% of total revenue, growing approximately 90% year-on-year in Q1 2026, its eighth consecutive sequential growth quarter.

AI GPU clusters require extraordinary analog semiconductor density for power conversion, conditioning, and thermal management. TI's product breadth, tens of thousands of general-purpose analog parts combined with the ability to supply at scale from geopolitically domestic U.S. facilities creates a durable competitive moat.

We project data centre revenue of approximately USD 2.5 billion in FY2026, USD 3.3 billion in FY2027 and USD 4.2 billion in FY2028, representing a revenue stream essentially absent from TI's FY2023 earnings power.

Figure 6: Data centre segment earnings actual (blue) and estimates (red)

4)      Silicon Labs Integration

TI's USD 7.5 billion acquisition of Silicon Labs (SLAB) is its most consequential strategic action in over a decade. The financial case rests entirely on manufacturing economics, not revenue synergies. By moving SLAB products from expensive external foundry capacity into TI's underutilised 300mm facilities, the company expects greater than USD 450 million in annual synergies within three years of closing.

With TI having invested approximately USD 25 billion in fabrication capacity that is currently underutilised, absorbing SLAB volume utilises existing installed capacity at near-zero incremental capital cost, making the synergy estimate appear conservative rather than aspirational.

Competitive Positioning

TI's primary competitive concern over a 3–5 year horizon is the expansion of Chinese state-backed foundries at mature process nodes (28–90nm) that overlap with TI's production nodes. Bloomberg Intelligence estimates China's share of global mature-node capacity will rise from 33% (2024) to 41.5% by 2030.

However, TI's products are defined by application-specific value, proprietary mixed-signal designs with deep customer integration rather than commodity pricing. TI's domestic US manufacturing aligns directly with reshoring trends and has attracted CHIPS Act support. Over $630 million in CHIPS Act benefits were received in the trailing 12 months to March 2026, with the bulk of the $1.6 billion total still ahead.

Earnings estimates

Table 2: Our revenue estimates by segment

(USD mil)	FY22A	FY23A	FY24A	FY25A	FY26E	FY27E	FY28E
Analog Segment	14,051	12,020	12,161	14,006	17,155	18,655	20,215
Embedded Processing Segment	4,809	4,116	2,533	2,697	2,985	3,300	3,812
Other (excl. SLAB)	1,168	1,383	947	979	961	1,000	749
Silicon Labs*	-	-	-	-	-	500	1,050
Total Segment Revenue	20,028	17,519	15,641	17,682	21,101	23,455	25,826

Source: Bloomberg Finance L.P., iFAST Compilation, Data as of 30 Apr 2026.
*Silicon Labs revenue estimates subject to change as integration is still ongoing

• AI Data Centre Power Management:

GPU-driven workloads are significantly increasing analog semiconductor intensity (DC/DC converters, VRMs, sensing, thermal). TI’s scale (80,000+ SKUs), domestic manufacturing, and policy alignment position it well as hyperscaler high CAPEX. Our data centre FY28 revenue reflected the optimism towards the segment.

Figure 7: Data centre segment summary

Source: Texas Instruments, iFAST Compilation, Data as of 2025 Annual Report.

• Industrial Automation & Electrification:

Structural demand across factory automation, energy systems, grid upgrades, and aerospace/defence supports long-term growth. Management indicates a broad-based industrial recovery post-destocking. Aerospace/defense alone exceeds $1B in stable revenue. Our FY2028E estimate of $9.9B (~24% above 2022 peak) reflects a reasonable mid-cycle outcome.

Figure 8: Industrial segment summary

Source: Texas Instruments, iFAST Compilation, Data as of 2025 Annual Report.

• Automotive Electrification:

Semiconductor content per vehicle is rising (~$500+ EV vs. ~$185 ICE), driven by electrification and safety mandates through 2027–2029. While the automotive semiconductor market is expected to grow ~9.1% CAGR to 2032, our FY2028E estimate of $7.0B (5.3% CAGR) remains deliberately conservative versus both market growth and TI’s trajectory.

Figure 9: Automotive segment summary

Source: Texas Instruments, iFAST Compilation, Data as of 2025 Annual Report.

• Silicon Labs IoT Platform:

SLAB’s portfolio (1,200+ products across Bluetooth, Wi-Fi, Sub-GHz, etc.) targets high-growth IoT applications. FY2025 revenue grew 34% YoY to $785M, supported by a USD 10B design-win pipeline. Integration into TI’s 100,000+ customer network should accelerate long-term monetisation through FY2030+.

Table 3: Our revenue estimates by end market  

(USD mil)	FY2022A	FY2023A	FY2024A	FY2025A	FY2026E	FY2027E	FY2028E
Industrial	8,011	7,533	5,787	6,896	8,980	9,429	9,900
Automotive	4,005	4,555	4,849	6,012	6,252	6,690	7,024
Data Centre	801	876	938	1,503	2,450	3,308	4,243
Personal Electronics	5,407	2,453	2,190	1,945	2,003	2,083	2,166
Communications Equipment	1,402	1,226	1,095	1,149	1,218	1,279	1,343
Other (DLP, Calculators, Legacy ASICs)	401	876	782	177	197	165	100
Silicon Labs*	-	-	-	-	-	500	1,050
Total revenue	20,027	17,518	15,641	17,683	21,101	23,455	25,826

Source: Bloomberg Finance L.P., iFAST Compilation, Data as of 30 Apr 2026.
*Silicon Labs revenue estimates subject to change as integration is still ongoing

A Fair P/E of 31x is assigned

We assign a 31x fair P/E, reflecting a balance between improving earnings visibility and incremental execution risks. The current 34–36x trailing multiple already embeds a meaningful recovery and is not appropriate to extend over a three-year horizon, especially given uncertainties around Silicon Labs integration and rising pro-forma leverage (~USD 19–22 billion post-SLAB).

Offsetting this, FY2028 represents a structurally different earnings base. It captures the first full year of Silicon Labs contribution, with cost synergies ramping and utilisation of 300mm capacity driving margin recovery towards historical levels (~63–65%). This supports a re-rating above long-term averages.

On balance, 31x below the current market-implied forward multiple but above the five-year (26.5x) and three-year (29.8x) averages, appropriately reflects its structural cost advantages, cyclical recovery, and incremental SLAB optionality without overextending current market optimism.

TP at $346 in FY28e, 29% upside potential

The earnings estimates reflect the conviction that FY2028 is the first year where both the FCF inflection and the Silicon Labs integration contribution are simultaneously and fully embedded in the earnings run rate. Applying our assessed fair P/E of 31x to USD 11.17 in FY 28e yields a primary price target of USD 346, implying +29% price appreciation from the current $269.

Table 4: Texas Instruments valuation

	FY25a	FY26e	FY27e	FY28e
EPS	5.6	7.9	9.4	11.17
y/y		41%	19%	19%
PE	48.0	34.1	28.6	24.1
Current Price	269
Fair PE (x)				31
Upside Potential				29%
Target Price				346

Source: Bloomberg Finance L.P., iFAST Compilation, Data as of 30 Apr 2026.

Key Takeaway

Our FY28e three-year primary target of USD 346 represents a deliberate extension of the analytical horizon to capture the first full year of Silicon Labs consolidation and the inflection point at which 300mm utilisation, margin recovery, and free cash flow per share all reach structural peaks simultaneously.

Declaration:

For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) and the analyst who produced this report hold a NIL position in the abovementioned securities.

This research report was prepared with the assistance of artificial intelligence (AI) tools. iFAST Financial Pte Ltd does not rely exclusively on AI for content generation; the content of this report – including all investment theses, ratings, price targets and conclusions – has been independently reviewed and verified by the research analyst(s) to ensure accuracy and professional integrity.