Texas Instruments Shares Drop: What Should Investors Do?

Texas Instruments (TXN) has seen its shares decline by 12.3% in the last month. This performance contrasts with the Zacks Semiconductor – General industry, the Zacks Computer and Technology sector, and the S&P 500 index, which fell by 4.8%, 5%, and 2.1%, respectively. This steep decline raises an important question: Should investors exit their positions, or is it better to hold on? Despite the current challenges, Texas Instruments presents a compelling long-term growth story, suggesting a hold on the stock could be beneficial.

One Month Price Performance of TXN

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Why TXN Stock is Underperforming

The recent decline in TXN shares results from broader market issues combined with specific challenges facing the company. A significant sell-off in tech stocks, prompted by fears of escalating trade tensions and slowing economic growth, has negatively impacted the entire technology sector, including Texas Instruments.

Further complicating matters, the U.S. government’s position towards China has raised alarms for Texas Instruments. Approximately 20% of the company’s expected total revenues for 2024 come from the Chinese market. The increasing geopolitical tensions, potential fresh sanctions, and ongoing tariff threats have fostered investor skepticism.

In addition, there are concerns about softness in Texas Instruments’ key markets, including industrial, automotive, and enterprise systems. These sectors accounted for nearly 70% of TXN’s revenues, and reports showed a sequential decline in the fourth quarter of 2024.

Nevertheless, not all aspects are negative for this semiconductor giant.

TXN’s Strategic Efforts for Recovery

Texas Instruments is implementing several strategic initiatives to promote recovery. With industrial and automotive markets showing signs of weakness, the company is seizing this opportunity to build up its inventory. Currently, with healthy inventory levels of $4.5 billion, Texas Instruments is well-positioned to meet customer demand once the market revives, avoiding the need for sudden spikes in production.

Previously, Texas Instruments acquired a factory from Micron Technology (MU) and repurposed it for manufacturing Analog and Embedded semiconductor products. The company is now investing in a second factory to enhance production capacity at its Lehi facility in Utah, enabling it to capture a larger share of the market.

In a positive development, Texas Instruments secured $1.6 billion in funding from the U.S. government under the CHIPS Act program. This funding will support new 300mm wafer fabs in Texas and Utah, reinforcing the company’s position as a strong supplier of analog and embedded chips globally.

Growth Driven by Solid Partnerships

Texas Instruments benefits from a robust network of partnerships. In addition to its collaboration with semiconductor partner Micron Technology, TXN works with major firms such as Apple Inc. (AAPL) and LeddarTech Holdings Inc. (LDTC) in the consumer and automotive sectors.

Micron Technology provides memory support critical for TXN’s products, including DRAM, LPDRAM, NAND flash, NOR flash, and eMMC, all qualified for TXN’s platform.

Apple integrates TXN’s semiconductor chips into its products and has also invested in Texas Instruments’ Utah factory. Additionally, LeddarTech collaborates with Texas Instruments to implement TXN’s advanced TDA4 processors in LeddarTech’s LeddarVision driver assistance systems solution.

Taking into account these dynamics, the Zacks Consensus Estimate anticipates TXN’s revenues for 2025 will reach $17.1 billion, reflecting a year-over-year increase of 9%. The earnings consensus stands at $5.35 per share, suggesting a 2.9% year-over-year growth.

Texas Instruments exceeded analyst expectations in each of the last four quarters, with an average surprise rate of 8.9%.

Find the latest EPS estimates and surprises on Zacks Earnings Calendar.

Conclusion: A Recommendation to Hold Texas Instruments Stock

In summary, despite the challenging macroeconomic environment and sluggishness in key markets, Texas Instruments remains on stable footing, supported by new production facilities, solid inventory levels, and strong partnerships. Given these factors, we recommend that investors consider retaining this Zacks Rank #3 (Hold) stock at this time. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Texas Instruments Incorporated (TXN): Free Stock Analysis Report.

Apple Inc. (AAPL): Free Stock Analysis Report.

Micron Technology, Inc. (MU): Free Stock Analysis Report.

LeddarTech Holdings Inc. (LDTC): Free Stock Analysis Report.

This article originally published on Zacks Investment Research (zacks.com).

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The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.