Freedom Broker analysts upgraded their recommendation on Texas Instruments (TXN) shares from “Hold” to “Buy” and raised the target price to $330. This implies upside potential of 18.07% versus the closing price of $279.50. Experts highlight improving profitability, a recovery in industrial and automotive demand, and rapid growth in data-center sales.
What Texas Instruments is
Texas Instruments is a global manufacturer of analog chips and processors for embedded systems. Its products are used in industrial equipment, automobiles, data centers, personal electronics, and telecommunications infrastructure.
Analog chips work with continuous signals such as voltage and temperature, while embedded processors control the functions of equipment and devices.
Analysts’ main argument: rising profitability
According to Freedom Broker, business profitability played the key role in beating expectations for Q3. Revenue came in only slightly above the consensus forecast; however, about 90% of the quarter-on-quarter increase flowed through to gross profit. This is above management’s long-term target of 75–85%.
This result demonstrates operating leverage: sales rise on an already-established cost base, so profit can grow faster than revenue. Additional support comes from pricing, factory utilization, and the sales mix.
Experts also note Texas Instruments’ ability to meet demand using its own capacity and inventories. In the analog chip market this is especially important: according to management, the industry has added little new manufacturing capacity, primarily outside China and Taiwan.
Revenue set a quarterly record
In Q3 of fiscal year 2026, revenue at Texas Instruments reached $6.06 billion, up 27.7% year over year and 10.8% versus the previous quarter. The result beat the $5.94 billion consensus forecast by 1.9% and Freedom Broker’s $5.90 billion forecast by 2.6%.
Gross profit rose 42.7% year over year to $3.89 billion. Gross margin—the share of gross profit in revenue—was 64.2% versus the 61.6% consensus estimate. Operating profit increased 72.8% to $2.87 billion, and operating margin reached 47.5%. Operating expenses rose 3.2% year over year to $1 006 million and fell 1.9% versus the previous quarter.
Net income totaled $2.43 billion, up 77.8% year over year and above the $2.22 billion consensus forecast. Diluted EPS reached $2.62 versus the $2.44 expected by the market. For the third consecutive quarter, the figure came in above the upper end of the company’s own guidance range.
Analog chips accounted for most of the growth
Revenue in the analog segment rose 31.7% year over year to $4.91 billion. Its share of total revenue reached 81.1%, and its contribution to the quarter’s sales increase was about 92%. Segment operating profit increased 68.6% to $2.51 billion. Operating margin rose to 51.0%.
In the embedded processors segment, revenue grew 21.0% to $858 million, while operating profit jumped 110.2% to $227 million. Margin reached 26.5%, returning to the historical range of 25–30%.
In analysts’ view, the recovery in this segment is lagging the analog segment by about a year. This leaves room for further growth as the industry cycle progresses.
Industry, autos, and data centers support demand
Texas Instruments sales increased across all end markets and in all regions. In the industrial market, revenue rose by more than 40% year over year and about 10% quarter over quarter, reaching a new peak for the first time in four years. Among the strongest areas were aerospace and defense, energy infrastructure, test and measurement equipment, and robotics.
Revenue from data-center products rose by about 95% year over year and 20% versus the previous quarter. This market now accounts for about 13% of the company’s total revenue. Demand is supported by cooling systems, power management, and other data-center infrastructure components.
In the automotive market, growth was about 15% year over year and 10% quarter over quarter. According to management, customers with low component inventories are increasing production, and demand may persist in Q4.
Free cash flow reached $2.96 billion
Texas Instruments’ operating cash flow was $3.42 billion, up 56.1% year over year. Capital expenditures fell 61.3% to $463 million.
Free cash flow reached $2.96 billion, up 176.8% year over year, and amounted to 48.8% of revenue. This metric reflects funds remaining after capital investments. During the quarter, the company did not receive direct proceeds under the CHIPS Act; the cash impact of the investment tax credit totaled $79 million.
Over the past 12 months, free cash flow reached $8.42 billion, up 248.7% year over year. Its share of revenue over the same period was 40.6%. In Q3, Texas Instruments paid $1.30 billion in dividends and allocated $48 million to share buybacks. Cash and short-term investments increased to $8.14 billion.
Q4 guidance came in stronger than typical seasonality
Management expects revenue in the range of $5.80–6.30 billion. The midpoint—$6.05 billion—implies sales holding roughly at Q3 levels and is 5.0% above the $5.76 billion consensus forecast. EPS guidance is $2.45–2.79. The midpoint of $2.62 is 13.4% above the $2.31 consensus estimate.
Freedom Broker emphasizes that this outlook runs counter to typical seasonality: in Q4, sales usually decline. Analysts attribute the resilience of the guidance to demand from industry, the automotive market, and data centers.
In their updated model, experts expect revenue of $22.41 billion for fiscal year 2026 and $26.41 billion for 2027. EPS is forecast at $9.07 and $11.80, respectively. The $330 target price is based on a valuation of 28x projected annual EPS for fiscal year 2027.
Key factors to watch remain the delivery timelines for assembly and test equipment, the sustainability of data-center investment, and the implementation of the planned price increase.
Freedom Broker previously offered an options idea
In a previous short-term idea, Freedom Broker analysts suggested buying a call option on Texas Instruments with a $260 strike price and an expiration date of November 20, 2026. At an entry price of $20.90, the target was $31, and potential return was about 48.3% over one to three weeks.
That idea was based on a recovery in semiconductor demand and an improvement in free cash flow. In the new review following the quarterly report, experts raised the recommendation on the shares themselves—from “Hold” to “Buy”.
This is not an individual investment recommendation.