Arete Research upgraded Texas Instruments to Buy and raised its price target 34% to $405, citing a doubling of data center revenue in Q2 and surging AI demand for power delivery chips.
The company's quarterly revenue of $5.46 billion beat consensus by $220 million while EPS of $2.14 beat estimates by $0.22, driven by analog chip sales that rose 26% to $4.37 billion.
An analyst expects three years of analog semiconductor shortages from AI buildout and projects the company will generate more than $8 in free cash flow per share by 2026 as its capital expansion finishes.
What happened
Arete Research upgraded Texas Instruments to Buy from Neutral and raised its price target by 34% to $405, citing a surge in data center revenue that doubled in the most recent quarter. Q2 revenue hit $5.46 billion (up 23% year-over-year), beating consensus by $220 million, and EPS rose 52% to $2.14 versus the $1.92 Street estimate.
Why it matters
The upgrade reflects a fundamental repricing of Texas Instruments' role in AI infrastructure. Hyperscalers are adopting 800-volt DC architectures to support denser GPU clusters, which increases demand for the company's high-voltage gallium-nitride power devices and sensing technology—the exact analog components that power these systems. An Arete analyst projects three years of analog semiconductor shortages due to surging AI demand, positioning Texas Instruments to capture significant market share during this cycle.
What to watch
Texas Instruments is completing a six-year, roughly $24 billion fab expansion that has constrained cash flow. Capital spending is set to drop sharply to $2 billion to $3 billion in 2026 from $4.55 billion in 2025, allowing free cash flow per share to triple from $3.23 in 2025 to exceed $8 in 2026. Arete projects revenue of approximately $34 billion and earnings of $17 per share by fiscal 2028.
Arete Research, an independent research firm, upgraded Texas Instruments to Buy from Neutral and lifted its price target to $405 from $303—a 34% increase. This move came days after Texas Instruments delivered a surprisingly strong quarter for what the market has long treated as a cyclical analog chip business.
In Q2, Texas Instruments reported revenue of $5.46 billion, up 23% year-over-year and beating the $5.24 billion consensus estimate. Earnings per share reached $2.14, up 52% year-over-year and exceeding the $1.92 Street estimate. The most striking detail buried in the results was a doubling of data center revenue, signaling a fundamental shift in demand drivers. Analog revenue rose 26% to $4.37 billion, reflecting strong momentum in this core segment.
Arete's thesis rests on structural tailwinds in AI infrastructure. According to the Arete analyst, surging AI demand is expected to cause three years of analog semiconductor shortages, and Texas Instruments is well-positioned on capacity to capture significant market share during this period. The analyst projects revenue of approximately $34 billion with earnings of $17 per share by fiscal 2028. The underlying dynamic is straightforward: hyperscalers are adopting 800-volt DC architectures to support denser GPU clusters, which increases the demand for analog content per rack. Texas Instruments serves this critical conversion layer through high-voltage gallium-nitride (GaN) power devices, real-time motor control, and sensing technology—products the market has historically overlooked as commodities but which are now essential to infrastructure scaling. The company's March collaboration with Nvidia on humanoid robotics expands this portfolio further.
Beyond the AI narrative, a more durable driver stems from the timing of Texas Instruments' capital cycle. The company has been executing a six-year, roughly $24 billion fab expansion that has constrained free cash flow. That spending phase is now concluding, and capital expenditure is set to drop sharply—from $4.55 billion projected in 2025 to $2 billion to $3 billion in 2026. With the fabs complete and revenue recovering, management now expects free cash flow per share to exceed $8 in 2026, compared to $3.23 in 2025, effectively tripling cash generation. This cash flow inflection, combined with the structural AI demand cycle, represents a repricing of the company's investment profile after years of underperformance during the build phase.
Texas Instruments has long been perceived by the market as a commoditized analog chipmaker—a mature, cyclical business with limited growth catalysts. That perception is now colliding with the reality of AI infrastructure buildout. The company's Q2 results broke the mold for the analog sector with 23% year-over-year revenue growth and a 52% jump in EPS, driven primarily by a doubling of data center revenue. This is not a one-time spike; the shift reflects a structural realignment of how hyperscalers are architecting power delivery for GPU clusters.
Arete's upgrade and the three-year analog shortage forecast signal a meaningful repricing of Texas Instruments' competitive position. The company has capacity advantages in a supply-constrained environment and holds key relationships with major cloud providers (evidenced by its 2024 collaboration with Nvidia on humanoid robotics). Critically, the upside is not contingent on an industrial market recovery—it rests on the relentless capital intensity of AI infrastructure, where every rack deployed demands more of the power management and sensing components Texas Instruments manufactures.
The cash flow inflection compounds this case. For six years, Texas Instruments has been constrained by a major fab build, but that capex phase is now closing. The swing from $4.55 billion in 2025 capex to a $2–3 billion run rate in 2026, combined with recovering revenue, is projected to triple free cash flow per share. This transformation from a cash-consuming expansion into a cash-generative business is a shift investors have been slow to price, likely because the previous cycle made them skeptical of analog capital returns.
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