The Cliff on the Other SideNarrow moat
Texas Instruments (TXN) — moat facet
From $4.55 billion to $2-3 billion — the single line on which the entire valuation rests.
The fabs are built. Whether they were worth building is the only question left about this company.
Capital expenditure ran at $4.55 billion in 2025 and $4.82 billion in 2024, against roughly 5% of revenue for the decade before the programme started.1 It is guided to $2–3 billion for 2026.2 That is the cliff, and everything in the bull case sits on the far side of it: the same operating cash flow, a much smaller capital call, and free cash flow that expands mechanically.
The arithmetic is straightforward. Operating cash flow was $7.15 billion in 2025 — 40.5% of revenue — against capital expenditure of $4.55 billion, leaving free cash flow of $2.94 billion. Hold operating cash flow constant, spend $2.5 billion instead, and free cash flow is above $4.6 billion. Grow revenue 20% as the June 2026 quarter did, and it is a great deal more.3
That is why the shares trade at 40 times trailing earnings for a company earning less than it did in 2022.
The risk in it is that capital spending guidance is a plan rather than a commitment, and TI has raised it before. Management declined to bias the 2026 range toward the lower end.
The number is free cash flow as a percentage of revenue. It was 16.6% in 2025 against a long-run history in the thirties.
Capital expenditure guided to $2-3bn for 2026 from $4.55bn in 2025 and $4.82bn in 2024. Each quarter that guidance holds, the free-cash-flow arithmetic improves mechanically without anything happening in the business.
The single line on which the valuation rests. Operating cash flow was $7,153M in 2025 — 40.5% of revenue — against capital expenditure of $4,550M, leaving free cash flow of $2,938M. Hold operating cash flow constant and spend $2.5bn instead, and free cash flow is above $4.6bn before any growth. Watch quarterly capital expenditure: one quarter above $750M would say the cliff has been deferred.
Source: Texas Instruments Q2 2026 results coverage ↗- ReportedCapital expenditure ran at $4.55 billion in 2025 and $4.82 billion in 2024, against roughly 5% of revenue for the decade before the programme started.Texas Instruments Incorporated, Form 10-K FY2025 — Management's Discussion and Analysis, cash flow statement and the free-cash-flow reconciliation. Cash flow from operations $7,153M (2024 $6,318M), 40.5% of revenue; capital expenditures $4,550M (2024 $4,820M); proceeds from CHIPS Act incentives $335M; free cash flow $2,938M (2024 $1,498M), 16.6% of revenue. In 2025 TI invested $3.94bn in R&D and SG&A, invested $4.55bn in capital expenditures and returned $6.48bn to shareholders. Dividends paid were $4,999M against $4,795M in 2024 and $4,557M in 2023, reflecting an increased dividend rate; $1,477M was used to repurchase 8.5 million shares against $929M for 4.7 million shares in 2024. Net proceeds of $1,199M were received from the issuance of fixed-rate long-term debt and $750M of maturing debt retired. Over the ten-year period from 2016 to 2025 TI allocated $109 billion, of which about $24 billion went to capital expenditures, and states it is near completion of its six-year elevated capital expenditure cycle. The dividend was raised 4% to $1.42 per share per quarter, marking 22 consecutive years of increases, since extended to 23. The One Big Beautiful Bill Act, enacted 4 July 2025, provided for expensing of US research and eligible capital expenditure and increased the CHIPS Act investment tax credit; TI expects the effective tax rate and tax-related cash payments to be lower than under prior law from 2026. — FY2025 · publ. 2026-02-06 · source ↗
- ReportedCapital expenditure ran at $4.55 billion in 2025 and $4.82 billion in 2024, against roughly 5% of revenue for the decade before the programme started. It is guided to $2–3 billion for 2026.Coverage of Texas Instruments' second-quarter 2026 results, July 2026 — revenue of $5.46 billion, up 23% year over year and 13% sequentially against consensus near $5.24 billion; net income of $1.98 billion, up 53%, and EPS of $2.14, up 52% and above the high end of guidance. By segment, Analog revenue was $4.37 billion (up 26%), Embedded Processing $788 million (up 16%) and Other $310 million (down 2%). Industrial revenue grew more than 30% year over year across all sectors and regions, automotive re-accelerated, and data centre revenue roughly doubled. Management guided third-quarter revenue to $5.65-6.15 billion and confirmed 2026 capital expenditure of $2-3 billion, declining to bias the range toward the lower end. After holding pricing flat through the first half, TI began executing customer-by-customer price increases from the third quarter, extending into the fourth quarter and into 2027, concentrated in Analog. Management has framed free cash flow per share of $8 or more as probable for 2026, having earlier suggested $12. The shares fell after hours. — Q2 2026 · publ. 2026-07-24 · source ↗
- ReportedGrow revenue 20% as the June 2026 quarter did, and it is a great deal more.Texas Instruments Incorporated, Form 10-Q for the quarter ended 30 June 2026 (SEC, CIK 97476). Revenue $5,463M against $4,448M a year earlier, and $10,288M for the six months against $8,517M; cost of revenue $2,111M; gross profit $3,352M against $2,575M — a 61.4% gross margin against 57.9%; research and development $535M against $527M; selling, general and administrative $490M against $485M; acquisition charges $17M; operating profit $2,310M against $1,563M. Income before income taxes $2,238M; provision for income taxes $258M; net income $1,980M against $1,295M. Basic EPS $2.16 and diluted EPS $2.14, against $1.42 and $1.41, on 920 million diluted shares. — Q2 2026 · publ. 2026-07-24 · source ↗