The third quarter of this year marks the first complete reporting period since activist investor Elliott Management took a $2.5 billion stake in the company. The firm wants TXN to focus on its cash flows rather than working on expansions that won’t even be utilized in the next 5 years due to low demand.
Elliott Management has a strong point as Texas Instruments’ shareholders were worried about the overwhelming focus on expansions. However, with an activist investor on their tail and an expansion funded by the US government through the CHIPS ACT, we are bullish on the company’s prospects.
Texas Instruments is a top American semiconductor company with headquarters in Dallas, Texas. The company specializes in the production and selling of analog and embedded processing chips.
It dominates the analog chips and embedded processors market, which together make up over 80% of its revenue. The company’s long history of innovation includes the invention of the integrated circuit and digital light processing (DLP) technology, while its extensive product line and commitment to engineering advancement enable effective service to be provided to a wide range of markets.
Some of the company’s key products are analog semiconductors, including amplifiers, data converters, sensors; embedded processors; DLP technology for projectors and displays, and educational calculators. The sources of revenue for Texas Instruments are industrial, automotive, personal electronics, communications equipment, and enterprise systems.
The company’s end markets are global, with major operations in North America, Europe, and Asia, with other regions experiencing rapidly increasing technology adoption. It serves various manufacturers in the automotive industry including Ford, Tesla, and General Motors. In the industrial sector, its customers include Siemens and Honeywell while in the Consumer Electronics sector, it serves the likes of Apple and Samsung.
Texas Instruments’ expansion plans, helped by $4.6 billion from the CHIPS ACT were a drain on its cashflows. That bearish factor has now turned into a bullish factor as America continues to work on reducing reliance on foreign semiconductor companies to make its chips.
Once operational, TXN’s three new facilities in Utah and Texas will produce 100 million chips daily. The company will serve the automotive, industrial automation, and personal electronics markets. All these markets are expected to experience high growth once improved autonomous driving and AI technology arrive.
What is also comforting for long-term investors is that the company has stayed profitable and continued dividends despite heavy investments and an industry downturn. This, coupled with the fact that the US government wants the company to succeed, makes TXN a safe long-term investment.
Texas Instruments is not on our latest list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 50 hedge fund portfolios held TXN at the end of the second quarter which was 49 in the previous quarter. While we acknowledge the potential of TXN as a leading AI investment, our conviction lies in the belief that some 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 as promising as TXN but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.
