1. Texas Instruments Incorporated (NASDAQ:TXN)
Company Market Cap as of December 31: $171.1 Billion
Number of Hedge Fund Holders: 57
Texas Instruments Incorporated (NASDAQ:TXN) is a technology company that designs, manufactures, and sells semiconductors to electronics designers and manufacturers. It offers power products to manage power requirements across various voltage levels. The stock was up by 10% in 2024, rallying to record highs as investors reacted to the company’s strategic positioning amid growing demand for chip technology.
Activist hedge fund Elliott Investment Management took a $2.5 billion position in the chip technology company. With the positioning, the hedge fund started agitating for the company to consider adopting a dynamic capacity management strategy. It also urged management to focus on achieving a free cash flow per share target of $9 a share by 2026.
Elliott claims that Texas Instruments Incorporated (NASDAQ:TXN) free cash flow has decreased by over 75% since the company began a significant capacity ramp-up in 2022 and that shareholders have received little information about when free cash flow per share will return to its historical average.
According to the activist investor, the company has expanded its capacity beyond the anticipated demand. Consequently, it is calling for the company to adopt a dynamic capacity management strategy to bolster per-share free cash flow.
Despite a poorer performance in Europe, Texas Instruments Incorporated’s (NASDAQ:TXN) automotive revenues have grown significantly, with strength in China making the difference. The company’s auto revenue growth from quarter to quarter was higher than anticipated. Furthermore, TXN has observed a broader cyclical recovery, with notable expansion in the fields of communications equipment, enterprise systems, and personal electronics, all of which are still below their prior peak levels.
The Diamond Hill Select Strategy likes Texas Instruments Incorporated (NASDAQ:TXN)’s long-term outlook, as revealed in its Q2 2024 investor letter:
“Among our top individual contributors in Q2 were Amazon, Texas Instruments Incorporated (NASDAQ:TXN) and Mr. Cooper Group. Shares of semiconductor manufacturing company Texas Instruments rose in Q2 as demand in several of the company’s end markets show signs of recovering. Given the company’s long-term prospects, competitive positioning and scale advantages, we believe the outlook for the company from here is strong.”
While we acknowledge the potential of TXN, our conviction lies in the belief that certain AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than TXN but that trades at less than 5 times its earnings check out our report about the cheapest AI stock.
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