TEXAS INSTRUMENTS INC (TXN) stock intrinsic value fair value estimate & owner earnings analysis

Texas Instruments designs and makes analog and embedded-processing chips: power-management, signal-chain, interface and microcontroller parts sold by the tens of thousands of catalog products into industrial, automotive, data-center, personal-electronics and communications equipment. Most of the chips are built in TI's own fabs, increasingly on 300mm wafers in Texas and Utah, and fewer than 20% of 2025 sales went through distributors. In 2025 revenue was $17.7 billion; 38% shipped to the United States, 21% to China and 11% to the rest of Asia, with Europe and Japan making up most of the remainder. How we measure earnings. We start from operating cash flow, strip out working-capital swings, charge stock compensation as a real cost, and deduct only the capital spending needed to keep the existing business running. On that basis TI earned $3.65 a share in 2016 rising to $7.20 in 2021 and 2022. The reported figures then fell to $2.28 (2023), $1.57 (2024) and $3.72 (2025). That drop is not weaker operations: operating cash flow held at $6.3-7.2 billion. It is TI's six-year capacity build. Capital spending went from about $0.5-1.1 billion a year before 2021 to $5.1 billion in 2023, $4.8 billion in 2024 and $4.6 billion in 2025. Because revenue was falling in 2023-2024, a strict upkeep-only reading treats all of that spending as upkeep. The 10-K says the elevated cycle is nearly over, with $2-3 billion of capital spending expected in 2026, and first-half 2026 spending of $1.19 billion (versus $2.43 billion a year earlier) confirms the step-down. U.S. CHIPS Act tax credits and grants ($588 million of cash benefit in 2024, $670 million in 2025) are treated as a rebate on that capital spending, not as operating income. The earnings level. Because 2023-2025 are distorted by a one-time construction program, we set the starting level from 2016-2022, a full cycle that includes the 2019 slowdown and the 2021-22 boom. Adding back cash interest, the business produced a median of about $5.70 a share a year before paying its lenders. A cross-check points the same way: 2025 operating cash flow before working capital, less stock pay and about $2.35 billion of true upkeep spending, gives roughly the same figure on 2025's mid-cycle revenue. The first half of 2026 ran well above this level, with revenue up 21% from a year earlier, but one upswing does not change a cyclical company's normal earnings, so we use it only in the bull case. Growth we credit. In 2025 earnings per share before interest roughly doubled from 2024 as capital spending began to fall. We do not extend that jump. The base case starts at about 2% a year. TI grew revenue 3.2% a year from 2016 to 2025 through two downturns, funded entirely from its own cash, with steady research spending that keeps adding products to a catalog customers design in for many years. We credit growth below that record and assume none after year ten. Earnings are held flat from then on, because the catalog, the long product lives and TI's owned low-cost manufacturing have kept this franchise earning for decades. We give no credit for filling the new fabs, for wider margins or for faster growth in data-center or automotive markets, because none of these is secured yet. Silicon Labs. In February 2026 TI signed an all-cash deal to acquire Silicon Labs for $231 a share, an enterprise value of about $7.5 billion, expected to close in the first half of 2027. We count the full $7.5 billion as money TI owes. Silicon Labs' own cash flow after stock pay and capital spending was negative in 2023, 2024 and 2025 and negative again in the first half of 2026, so the bear and base cases give the acquired business no value. The bull case credits about $75 million a year, roughly what it earned in 2019-2020. Unless the deal earns well above its recent record, it takes value from TI shareholders. Debt. TI owes $14.15 billion of fixed-rate notes with maturities spread from 2026 to 2063 ($0.5 billion in 2026, $1.15 billion in 2027, $0.7 billion in 2028, $1.4 billion in 2029, $1.3 billion in 2030, and $6.0 billion due after 2038). Many carry coupons far below today's rates, such as 2.70% to 2051 and 4.15% to 2048, and that cheap long-term funding is worth about $1.7 billion to owners. Against that, TI holds about $7.0 billion of cash and short-term investments, of which we treat about $1.5 billion as needed to run the business. Adding the Silicon Labs commitment, net obligations come to about $14.5 billion, or $15.77 a share. Interest after the deal should be around $0.9 billion a year, which even the bear case's worst year (about $3.3 billion of cash before interest) covers more than three times over. Bear case: $57 a share. One full analog downturn like 2022-2024, when TI's revenue fell 22% from $20.0 billion to $15.6 billion and operating cash before working capital fell about 36%. Here it cuts earnings 35% and 30% in the next two years before recovering by year five. On top of that, half of TI's China business (21% of sales) is lost over seven years to local competitors and trade measures, taking about 15% off earnings. There is no growth, earnings shrink 1% a year after year ten, and Silicon Labs contributes nothing. The business is worth about $67 billion, it owes about $14.5 billion, and about $52 billion, or $57 a share, is left for shareholders. Base case: $95 a share. Earnings start from the $5.70 full-cycle level and grow about 2% a year to roughly $6.95 a share by year ten, then hold. The business is worth about $102 billion, it owes about $14.5 billion, and about $87 billion, or $95 a share, is left for shareholders. Bull case: $124 a share. The new 300mm capacity stays well loaded. Earnings start at $6.30, still below the first-half 2026 pace, and grow 4% a year, and Silicon Labs returns to its 2019-2020 earnings. The business is worth about $128 billion, it owes about $14.5 billion, and about $113 billion, or $124 a share, is left for shareholders. What changed since our previous analysis. Those figures were built on a different basis and are not comparable. What has changed in the business: the capacity build is visibly winding down, first-half 2026 revenue and cash flow have recovered strongly, and the Silicon Labs purchase is now a firm $7.5 billion commitment that we charge against the shares. Margin-of-safety price. We are fairly confident in the earnings level. TI produced about $4-7 a share of cash before interest across the 2016-2022 cycle, and the cash cost of its expansion is now ending on a date the company has stated and the first half of 2026 has confirmed. The worst plausible outcome is a deep, long chip downturn arriving just as China turns away from American analog suppliers and Silicon Labs disappoints. TI's structure would survive that: its debt is fixed-rate and spread out, it sells tens of thousands of products with less than a fifth of sales through distributors, and it owns most of its manufacturing. The things we are most likely to be wrong about are how much spending the larger fab network really needs to keep running, how much of the China business lasts, and what Silicon Labs is worth. If we are wrong on all three, the shares are worth something like the bear case, in the high $50s. TI pays a dividend of about $5.60 a share a year, and that payout has risen every year in the record we examined. The margin-of-safety price is $55. At that price the dividend alone is about 10% a year, so the base case implies the 20% target from any recovery toward base value over three to four years, and the bear case implies little permanent loss.