◆ What the Market Isn't Pricing In

Texas Instruments (TXN) — the variant view

A dividend running at 1.7 times free cash flow, a return on capital that should mechanically reverse, and pricing that has just restarted.

📈 TXN valuation, revenue & earnings — P/E, P/S, revenue, EPS →

Three things about Texas Instruments are visible in the filings and get lost in the argument about the multiple.

Three things in the filings1.7xdividend againstfree cash flow49.8% to 17.6%return oncapital, and why57.0% to 61.4%gross margin,on volume alone$9.41EPS in 2022,against $6.58 nowThe bet at 40x earnings is that 2022 was not the peak.
Not cheap on any measure of the present.

The first is that the dividend is not covered by free cash flow and has not been for years. TI paid $5.00 billion of dividends and repurchased $1.48 billion of stock in 2025 — $6.48 billion returned — against free cash flow of $2.94 billion.1 The gap was funded partly by issuing $1.20 billion of long-term debt. This is not distress: TI is deliberately spending through a capital cycle while maintaining a payout that has risen for 23 consecutive years, and the balance sheet can carry it. But anyone valuing this company on its dividend record should know that the dividend has been running at roughly 1.7 times free cash flow, and that the arithmetic only works if the capex cliff arrives as promised.

The second is that the returns collapsed for a reason that is supposed to reverse. Return on invested capital fell from 49.8% in 2021 to 17.6% in 2024, and the cause was $24 billion of factory construction landing on the balance sheet while the analog cycle took revenue down 22%.2 Both halves of that are now moving the other way: revenue rose 13% in 2025 and 23% year over year in the June 2026 quarter, and capital spending is guided down to $2–3 billion for 2026 from $4.55 billion.3 The same arithmetic that halved the return should work in reverse, and the market has clearly decided it will.

The third is that pricing has restarted. TI held prices flat through the first half of 2026 and then began executing customer-by-customer increases from the third quarter, concentrated in Analog. In a business where gross margin moved from 57.0% in 2025 to 61.4% in the June 2026 quarter, price is the second lever after volume, and it is the one that does not require a single additional wafer.4

What the market is paying 40 times earnings for is the completion of that sequence. It is worth being precise that TI is not cheap on any measure of the present: earnings per share of $6.58 over the last twelve months are still below the $9.41 it earned in 2022.5 The bet is that 2022 was not the peak.

References
  1. ReportedTI paid $5.00 billion of dividends and repurchased $1.48 billion of stock in 2025 — $6.48 billion returned — against free cash flow of $2.94 billion.
    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 ↗
  2. Moat Explorer calcReturn on invested capital fell from 49.8% in 2021 to 17.6% in 2024, and the cause was $24 billion of factory construction landing on the balance sheet while the analog cycle took revenue down 22%.
    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 ↗
  3. Moat Explorer calcReturn on invested capital fell from 49.8% in 2021 to 17.6% in 2024, and the cause was $24 billion of factory construction landing on the balance sheet while the analog cycle took revenue down 22%. Both halves of that are now moving the other way: revenue rose 13% in 2025 and 23% year over year in the June 2026 quarter, and capital spending is guided down to $2–3 billion for 2026 from $4.55 billion.
    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 ↗
  4. ReportedIn a business where gross margin moved from 57.0% in 2025 to 61.4% in the June 2026 quarter, price is the second lever after volume, and it is the one that does not require a single additional wafer.
    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 ↗
  5. ReportedIt is worth being precise that TI is not cheap on any measure of the present: earnings per share of $6.58 over the last twelve months are still below the $9.41 it earned in 2022.
    Texas Instruments (NASDAQ: TXN) market data — share price about $267, market capitalisation about $243.4 billion on 913.25 million shares outstanding, trailing price/earnings about 40.5 and forward price/earnings about 27.5, on trailing revenue of $19.45 billion and trailing net income of $6.02 billion; trailing EPS $6.58 against $9.41 earned in 2022; dividend yield about 2.13%; 52-week range $152.73 to $334.03. — August 2026 · publ. 2026-08-28 · source ↗
Sources
Generated September 23, 2026