Texas Instruments (TXN) stock just reported its best-ever quarterly performance, lifting its stock nearly 20%, according to Yahoo Finance.
That kind of outcome isn’t typical for a mature analog giant, which is why Bank of America analysts sounded off in a big way after earnings.
The bank upgraded Texas Instruments to a Buy from Neutral and raised its price target to $320 from $235.
xBofA analysts believe that the company is entering a new era of free cash flow generation that the market hasn’t yet priced in.
On top of that, the first-quarter report and a second-quarter guide caught even the optimists off guard.
“The guide was better than even our most bullish scenarios,” said BofA analyst Vivek Arya.
After the call, Arya and his team raised earnings estimates for 2026, 2027, and 2028 by 21%, 31%, and 33%, respectively.
“This magnitude of raise signals more than just a beat-and-raise quarter, it’s a structural re-rating,” the analysts noted.
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Texas Instruments’ numbers blew past Wall Street forecasts
The latest numbers from the tech giant are solid, to say the least.
Q1 sales came in at $4.825 billion, on top of the prior midpoint guidance of $4.5 billion, and up 18.6% year-on-year.
Also, gross margin shot up to 58%, while operating margins rose to 37.8%, both besting estimates by a massive margin.
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Indeed, for Q2, management forecasts sales at the midpoint of $5.2 billion, with gross margin up to 59% (indicating that the multi-year process of rebuilding gross margins (GM) above 60% is continuing as planned).
The inventory days are finally settling down, down to 211 days vs. 244 a year ago, placing the company on a path to settle 200 days below, which is historically associated with better pricing conditions.
Net cash per share is still deep in the negative at -$9.79, but that’s due to debt-financed capital spending. As free cash flow kicks in, the company’s balance sheet will snap back quickly.
Key takeaways from the BofA Texas Instruments upgrade:
- Rating upgrade: Bank of America raised the stock to Buy from Neutral, underscoring a clear onvictio shift.
- Big upside call: The price target surged to $320 from $235, implying about 35% upside.
- Growth-driven valuation: The new target is based on a 34x 2027 P/E multiple, reflecting faster EPS growth expectations.
- Earnings momentum: Analysts see rising profit growth as a critical driver behind the higher multiple.
- Cash flow story: Free cash flow per share is projected to reach $12 by 2028, a trend BofA says investors are underappreciating.
What’s really firing up the TI bull case
The first quarter numbers are a big part of the upgrade, but they’re not the whole story.
BofA’s call is anchored in a multi-year shift toward higher-value sockets.
“TXN is now past the peak of its historic capex build-out,” according to the BofA report. That means the company is about to harvest what it’s been planting.
Industrial revenue surged 30% year-over-year in Q1. “Industrial is back with a vengeance, we haven’t seen this kind of broad-based strength in two years,” the analysts wrote.
The firm also pointed to a $1 billion-plus annual business in aerospace and defense. “Aerospace and defense sockets are incredibly sticky. Once designed in, they stay for a decade,” BofA analysts noted. Data center-related sales made up 11% of revenue in Q1, nearly doubling from a year earlier.
At the same time, BofA sees a hidden AI angle emerging.
The bank believes Texas Instruments’ data center power exposure may quietly become a tremendous growth driver, reaching 15%–20% of the mix over the next 18 months.
At the heart of that shift are multiphase controllers for high-voltage servers, which analysts view as a brand new and increasingly important sales stream.
Perhaps more importantly, BofA says the company is moving out of a big investment phase and into a period where those bets start paying off.
What Texas Instruments management is saying
CEO Haviv Ilan feels the company’s operating conditions continue to improve, noting that customer inventory levels are normalizing while demand is strengthening across the board.
He pointed out two major wins on the design side in industrial and automotive, two of the company’s most critical end markets.
On the cost side, Ilan said the company’s 300mm fab expansion in Texas remains on track, a move he believes will continue to deliver a structural cost advantage that the competition can’t easily match.
The management believes a turning point is here, with Ilan adding that, “We’ve been patient through the capex cycle, now we start to reap the benefits.”
Risks to the BofA Texas Instruments thesis
BofA isn’t ignoring the risks.
Perhaps the big overhang is the planned $7.5 billion acquisition of Silicon Labs, which should close out in the first half of 2027.
That deal will likely pause share buybacks while adding a ton of leverage to the balance sheet, creating “near-term noise.”
Moreover, there’s also a ton of uncertainty in key end markets.
Auto demand, in particular, remains uneven.
BofA analysts flagged ongoing questions surrounding Chinese EV subsidies, limiting growth in segments investors are counting on to effectively rebound.
On top of that, there’s a credibility issue.
Texas Instruments started off strongly in fiscal 2025, only to lose momentum later in the year.
As BofA analysts put it, “We’ve seen this movie before,” with a solid start to the year followed by a dramatic slowdown.
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