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Texas Instruments' (TXN) ability will likely benefit tremendously from powerful positive trends, including the explosive growth of data centers, the automotive-chip market, and humanoid robotics. This leaves it well-positioned to deliver excellent returns for investors in the medium-to-long-term. Also importantly, Citi is quite bullish on the shares, while the market overreacted to the chip maker's weaker-than-expected guidance, creating a favorable entry point and an attractive valuation.
TXN develops analog chips and embedded processors. Among its major customers are data centers and companies in the industrial, automotive, and personal-electronics spaces.
Poised to Get Big Boosts From Multiple Booming Markets
A number of Texas Instruments' products enable data centers to utilize more GPUs in smaller spaces, allowing the data centers to provide more computing power per foot and ultimately increase their profitability. Consequently, it's unsurprising that the company's revenue from data centers is surging tremendously, as its sales to that sector soared 100% last quarter versus the same period a year earlier. Given the continued rapid expansion of data centers, TXN's revenue from that space should continue to jump and compound going forward.
Meanwhile, with the amount of software in vehicles surging, TXN's automotive revenue expanded by about 15% last quarter versus the same period a year earlier. And with self-driving cars and trucks starting to proliferate globally, the revenue growth of the firm's automotive unit should accelerate a great deal in the longer term.
Finally, in March TXN disclosed that it was partnering with Nvidia (NVDA) “to enable low-latency 3D perception and safety awareness for physical AI applications,” including humanoid robots. According to one estimate, the humanoid robot market will soar at a compound annual growth rate of 28% from 2026 to 2035.
Citi Is Upbeat on TXN Stock
Citi expects the demand for analog chips to climb significantly going forward. Specifically, it expects the sales of such semiconductors to the industrial and automotive sectors to rise 30%-35% and 12%-15%, respectively. Naming TXN as one of its best choices among analog chip makers, the bank expects the company's market share to increase due to its large manufacturing capacity. Citi kept a “Buy” rating on TXN stock. Overall, a consensus among 34 analysts rate TXN a “Moderate Buy.”
A Favorable Entry Point and an Attractive Valuation
TXN stock has been weak in recent days because on July 22, the firm, in conjunction with its Q2 earnings announcement, provided Q3 revenue guidance of $5.65 billion to $6.15 billion, versus analysts' average estimate at the time of $5.9 billion. Because the midpoint of the guidance range came in slightly below analysts' mean estimate at the time, the shares fell. That's the type of short-term, finicky judgment by the Street which often produces good entry points for longer-term investors.
In the wake of the shares' downturn, they are changing hands at a forward price-to-earnings ratio of 33.03 times. Since analysts are expecting Texas Instruments' earnings per share to soar 53.21% this year, and the company has multiple positive catalysts that should endure for the foreseeable future, the shares' valuation looks quite attractive.
