Texas Instruments (TXN)

Total return at 5 years: -0.7%/year = -3.1% appreciation + 2.4% dividend. The target price ($241) is ex-dividend; the $32 in dividends collected over 5 years are added separately.

By both methods, the value today (DCF $212 · Multiples $221) is below the market price ($282).

Today — expensive, no margin of safety: at $282 trades ~27.3% above its value discounted to today (~$221); the expected return does not even reach the risk-free rate (4.5%).

At 5 years — Sobrevalorado: the expected total return is negative — the price already discounts a demanding scenario that, if not met, results in a loss.

The bridge: the return at 5 years falls below the risk-free rate (4.5%) — which is why there is not even a discount to today's value. To require a 15% annual return, it would need to be bought at ~$141.

Educational / informational. Does not constitute investment advice.

The inverse approach: instead of projecting growth to obtain the value, the market price ($282) is taken as given and it solves for what annual owner-earnings growth would need to hold for 5 years for the present value —at the method's rate (4.5%, no-growth terminal)— to equal that price. It is the disconfirmation test: the expectations the price already pays for, contrasted against the method's projection.

The price discounts growth (14.6%/year) above our base case (8.0%/year) → it is priced for a demanding scenario and leaves little cushion against a slowdown.

That growth implies ~$12.5 bn of owner earnings in year 5 (vs ~$9.3 bn of our base case). It recalculates if the DCF assumptions are edited.

Year-by-year projection of the selected scenario. From each year, two versions of the flow are derived: growth FCF (operating flow − total capex, the cash surplus) and maintenance FCF (the owner earnings: what the business yields if it only sustains its capacity). The flow is returned almost in full (dividend + buyback) or redeployed into the operation, so that EV stays roughly flat and multiples compress because the metric grows, not because of cash accumulation. The valuation is done on EV/NOPAT (semiconductor analógico). In edit mode, revenue, margins, capex, and exit multiples can be adjusted.

Re-based to the TTM ended 2026-06-30. Real TTM revenue (+16.7% year over year, with the quarter to Jun-26 at +22.8%) reflects TXN's cyclical recovery from the trough of the 2023-2024 analog/industrial semiconductor inventory correction (progressively easier comparisons quarter after quarter) — not a structural change in trend. As a cyclical valued at mid-cycle (§2/§4, the analog semiconductor archetype), the base case's year 1 is not raised to chase the peak of the recovery: it stays at +10.1%, decelerating toward the +4.1% terminal (year 5), within the archetype's 4-8% mid-cycle band. The operating margin also anchors to the real TTM (37.3%, +2.0pp over the previous assumption) as a raw year 0 — there is no one-off charge or gain to normalize; it is a level sustained over 4 consecutive quarters of operating margin recovery, consistent with the operating leverage typical of a cycle upturn. The bear case margin trajectory is re-anchored preserving its original shape (the same cumulative increments from year 0) to eliminate the artifact of the mechanical substitution of year 0: the automatic rebase left the margin falling from 37.3% to 36.0% in year 1 before rising again, which violates the rule against paths that fall and then rise (§5 R3); with the new anchoring the bear case rises monotonically from 37.3% to 40.0%. The base and bull cases did not show the artifact (their year-1 margins, 38% and 40% respectively, were already above the new real year 0) and are left unchanged. Separate note: the real TTM OCF margin (23.4%) diverges sharply from the previous assumption (~42.4%), but it is not TXN's valuation metric (EV/NOPAT via the operating margin) and it was not flagged; it is left declared for visibility, without adjustment.

Today's elevated multiple is the price of growth: if the business grows, the entry point cheapens on its own going forward (the metric grows while EV stays roughly flat). The exit multiple at 3 years is higher than the terminal at 5 years —at 3 years there is more growth still ahead—, so the value curve shows whether value creation is concentrated in the early or the later years. The required return is applied to the base scenario.

They are valued separately, with their own rationale, and are not incorporated into the base or the verdict (they are excess return). When assigning them value — in Editmode —, the total with optionalities updates live, without moving the base.

The verdict, the base CAGR, and the margin of safety are always calculated on the base; optionalities do not alter them (with optionalities at $0 they do not move).

Each card fixes a required annual return and answers: if the business is worth $241 in 5 years, what is the maximum that can be paid today to obtain that return? Since it now trades at $282, the margin of safety is how much cheaper the market is than that maximum. The three thresholds: 4% covers inflation (the floor), 10% is the long-term average return, and 15% is the level of a great investment.

With a target price of $241 in 5 years plus $32 of dividends collected (the dividend adds to the return, not to the price) and a required return of 4.5% annually, the maximum to pay today is $221. Against the current market price ($282), the margin of safety is -27.3% (trades above the maximum → a premium is paid) and the total return at that price would be -0.7% annually.

• Multiple vs the band. ~42× EV/NOPAT on the trough-depressed result — above the analog band [18,24]. The exit multiple (22×) is disciplined to mid-cycle; today's is a peak multiple.
• Inflection already paid for. The price has already paid for the inflection; the market has already priced in the recovery + the cash inflection. There is no discount; it is one of the most beloved stocks in the sector.
• Margin of safety. Base 5-year ~$241 vs. price ~$282 → total return -1%/year, negative. No margin; a superb business priced for perfection. Worth waiting for a cycle trough.

Each margin over sales, year by year: historical (solid line) → projection (dotted).

• ✓ ROIC exceeds the cost of capital (~10%)
• ✓ High incremental ROIC (compounding)
• ✓ CFROIC backs up the ROIC (91%, cash vs. accruals)
• ✓ Healthy balance sheet (low corporate debt)
• ✓ Durable competitive moat (multiple advantages)

• ROIC vs the 10% bar. ROIC 25.2% — above the 10% bar, in the 'exceptional' band, though depressed vs. its historical norm (~30%+) by the capex cycle that is yet to inflect. It recovers as plants mature.
• Quality of cash. Free cash flow was depressed by capex (CFROIC ~15% vs. ROIC 25.2% — the investment-cycle divergence, §3), but inflects higher. Stock-based comp is modest (~2.4% of revenue, expensed in the metric).
• Balance sheet. Net debt ~$9bn (a shift from historical net cash — used to fund the fabs). Investment grade, ample coverage. Silicon Labs will add debt. Manageable with free cash flow inflecting.

Annual levels from the official filing (10-K); the % over each bar is the year-over-year (YoY) growth vs the prior year.

TXN's engine is volume × price across a catalog of ~80,000 products, where volume tracks the semiconductor cycle and price/margin depend on the utilization of the internal fabs. The margin lever is gross margin (57%, recovering from the trough toward the low-to-mid 60s percent as the fabs fill up). The metric TXN prioritizes is free cash flow per share, now inflecting higher as the capex cycle winds down (capex from the $5.07bn peak toward $2-3bn). It returns nearly all of it via dividend (22 years of increases) + buybacks (modest, currently prioritizing capex + the Silicon Labs acquisition).

The % are the annual (year-over-year) growth: each year —historical and projected— vs the prior one; the TTM (trailing 12m) vs the TTM of a year ago, to avoid overlapping windows. The historicals are exact figures from the official filings; the projected years come from the year-by-year model (the intermediate years without their own series are interpolated between the anchors). The projected columns (+1y…+5y) are 12-month windows counted from the TTM close (30-jun-2026): the projection starts from the most recently reported data, not the fiscal year. The projected base is realistic and unbiased — the risk discount is applied at the end, via the required return. The rationale for each metric is in the (i).

• Real, not nominal. Growth is real: cyclical recovery + secular chip content (electrification, automation, AI). No monetary inflation distorting it.
• Growth engine. Secular chip content in Industrial + Automotive + Data centers, on top of cyclical volume. Modest when normalized (~5-7%); the free cash flow inflection compounds the per-share figure.
• Cyclicality. Revenue is coming off a trough and recovering, but volume tracks the economic cycle. Growth is cyclical, not purely secular — extrapolating today's +19% recovery is the risk (§2).

• Relevant in 10 years (recurrence). Analog + embedded chips are essential components of nearly everything electronic, with life cycles of a decade or more. Content grows secularly. Very high recurrence; volume cyclicality is the limit.
• Pricing power. Moderate: across a long-lived catalog with sticky customers, TXN has pricing power on reorders; but the initial design win is price-competitive and China pressures commodity analog.
• Moat and its direction. Wide moat (cost + scale + catalog + stickiness), stable-to-favorable direction (secular content + the 300mm cost advantage). One of the best moats in semiconductors.
• Cyclicality. Volume tracks the semiconductor cycle + channel inventory cycles (revenue fell ~22% from peak to trough). TXN bottoms out, it does not collapse, but it is genuinely cyclical — the mistake is extrapolating the recovery.

Not all debt is equal: only the structural needs refinancing; the rest is operational (self-liquidating).

Structural debt is what is exposed to the contraction phase of the cycle; operational debt (leases, matched funding) self-liquidates with the business.

• ✓Leverage (net debt / EBITDA)Net debt / EBITDA 0.8x
• ✓Interest coverage (EBIT / interest)13.0x
• –Liquidity (current ratio)no data
• ✓Cash quality (CFROIC vs ROIC)CFROIC backs 91% of ROIC
• ✓Value creation (ROIC − 10% bar)+15pp
• ✓Malinvestment test (capex vs incremental ROIC)Productive investment (2.0x)
• !Float / working capitalConsumes cash $0.2 bn (positive WC)
• ✓Dilution (SBC % of revenue + shares)SBC 2.1% of revenue

A traffic-light interpreted by the method (not generic): float (negative WC) adds up, capex is judged by incremental ROIC (malinvestment test), and a lender is not subjected to corporate solvency. The (i) shows the derivation of each number.

• Leverage. Net debt ~$9bn (~2× EBITDA approx., a shift from historical net cash) — investment grade, ample coverage. Silicon Labs (~$7.5bn) will add debt; leverage to watch but manageable.
• Cash generation. Free cash flow inflects ($1.3bn 2023 → $5.4bn TTM) as capex declines. High quality (recurring catalog). The stated objective is free cash flow per share.
• Capital return. Dividend, 22 years (an elevated ~97% payout ratio from trough EPS, backed by free cash flow) + buybacks (moderated by capex + Silicon Labs). Frees up as capex declines.

Who owns the shares — the alignment and whether there is a controlling shareholder.

• Skin in the game. Insiders <1% (dispersed ownership, no founder). CEO Ilan consolidated CEO + Chairman in 2026 — it concentrates power. Holding requirement 6× salary.
• Capital allocation. Historically disciplined: strategic capex (300mm), dividend (22 years), buybacks. Returned $6.48bn in 2025. The big bet is internal manufacturing + Silicon Labs; the stated objective is free cash flow per share.
• Execution / integrity. Executed the 300mm strategy + the CHIPS Act. Compensation has a mechanical anchor (operating margin). The nuance: no formal free cash flow per share targets, and Ilan's role consolidation.

• It is not cheap: at ~$282 it trades at ~42× EV/NOPAT on the trough result, above the analog band [18,24].
• The market has already priced in the thesis: the cyclical recovery + the free cash flow inflection (as the capex cycle winds down) + a sustained premium multiple are all in the price.
• No absent buyers or motivated sellers are identifiable — the discount characteristic of an opportunity does not exist; the expected return (-1%/year) is negative because the price is one of perfection.

Texas Instruments is not a case of a cheap stock — it is the opposite: a superb business priced for perfection. The why-is-it-cheap taxonomy does not apply: there are no absent buyers (it has full coverage, it is a beloved blue chip) and no motivated sellers (there was no one-off that sank results). On the contrary, the price reflects that the market embraced the free cash flow inflection thesis + the cyclical analog recovery. The perception-reality gap, if there is one, runs the opposite way from a bargain: the market is paying today for a complete recovery + a sustained premium multiple, and normalizing to mid-cycle with discipline, the expected return is negative. Without a source of discount, the edge is missing: value discipline says to watch it and wait for a cycle trough (or a China scare), not to buy it with the inflection already paid for.

The annual return (CAGR at 5 years) in each scenario, with the total period return below — the margin of safety made visual: upside range wide, downside range narrow.

Even in the bear scenario, the return holds at -10%/year (-40% total): the margin of safety protects the downside. The bull (+5%/year, +25% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.

• Cyclicality + valuation. The central disconfirmer: coming off a trough, at ~42× EV/NOPAT. A cycle relapse + multiple reversion is the biggest risk to returns. Extrapolating the recovery is the cyclical mistake.
• China. ~50% of revenue ships to China; an anti-dumping probe (concluding ~Sep-2026, alleging a >300% margin) + a rule penalizing U.S. manufacturing. A direct overhang on the strategy and revenue.
• Fab underutilization. Internal manufacturing = high fixed costs; if demand disappoints, the new 300mm fabs sit underutilized and margin is punished — the mirror-image risk of the cost advantage.
• Tax rate. The effective rate is low (~13%); the global minimum tax (Pillar Two / OBBBA / BEPS) could push it toward 15%. CHIPS Act credits carry clawback provisions.

Each thinker's analytical framework applied to our data.

• Buffett / Graham Quality + margin of safety

  A wide moat and ROIC 25% above the 10% bar, but the price sits above value (no margin) → great business, expensive.

• Peter Lynch Growth at a reasonable price (GARP)

  A fast grower growing 8% at a multiple/growth of 5.2 → expensive for its growth.

• Joel Greenblatt Cheap and high-return (Magic Formula)

  Earnings yield 3% (EBIT/EV) + ROIC 25% → falls outside the Magic Formula.

• Howard Marks Perception vs reality + cycle

  The price discounts 15% vs our 8%: priced for perfection, no favorable mispricing.

• Seth Klarman Capital protection (bear scenario)

  Bear-scenario floor -13%/yr over 5y (material loss) → risk of permanent capital loss.

• Pat Dorsey Moat strength (Five Rules)

  A wide moat, stable; sources: cost advantage, efficient scale, switching costs, intangibles → passes the Five Rules.

• Aswath Damodaran Expectations implied by the price

  The price demands 15% growth, far above our 8% — heroic assumptions.