TXN · Nasdaq · Semiconductors & Related Devices
$280.11 · $255.7B market value · fiscal year to 31 Dec 2025
4 of 10
Buffett tests pass
Margin of safety -686%
Bear
$16.66
Base
$35.64
Bull
$62.39
Price $280.11
The price is above even the bull case.
Texas Instruments (TXN) designs and makes analog and embedded processing chips, the small parts that manage power, read real-world signals and run software in electronic equipment. Our tests find a profitable business that reported no loss years in the period covered, with gross margin, the share of each sale left after the direct cost of making the chip, averaging 63%. Its cash picture is weaker: owner earnings, the cash an owner could take out after keeping the business competitive, were $3.0B in the latest year and have fallen at -2.4% a year. Valuation is the main issue. At $280.11 the shares trade on 51× earnings, while our two-stage model, which discounts future owner earnings back to today, gives a base value of $35.64 per share and a bull value of $62.39.
Predictability: Medium
Texas Instruments designs and makes analog and embedded processing chips. These are small electronic parts that manage power, convert real-world signals such as sound and temperature, and run software in electronic equipment. It sells to more than one hundred thousand customers across many end markets, and most of its manufacturing is done in its own factories. Its gross margin, the share of each sale left after the direct cost of making the chip, has been high, and it is 63% on average.
Inside the circle? The products, customers and manufacturing model are understandable, and the business has never reported a loss year in the period covered, with 0 loss years. However, owner earnings have swung widely, from $3.0B in the latest year against much higher levels earlier in the decade, and -2.4% a year over the period, so a ten-year estimate depends heavily on the timing of the cycle and the capital spending that follows it. The excerpts do not show price trends for individual products, so the filing alone does not prove that pricing power has held up.
Durability
Narrow
Pricing power
Unclear
Moat type
Cost advantage, Switching costs
Texas Instruments appears to rely on two sources of protection: a manufacturing cost edge from its own large wafer fabs, and switching costs in Embedded Processing, where customers reuse software across product generations. The filing describes these as its four sustainable competitive advantages, and the long-run margins are consistent with some real advantage, with gross margin averaging 63% and return on invested capital averaging 45%. Owner earnings, which are the cash an owner could take out after the capital spending needed to keep the business competitive, have fallen at -2.4% a year, and capital spending has run at 2.2× depreciation, so the cost edge has to be paid for again and again. Return on invested capital was 21% in the latest year, and the high return on equity of 48% is flattered by a small equity base, so we cannot read it as proof of economics alone. We rate the moat as narrow: it may last, but the filing does not show product price trends that would confirm pricing power.
Threats to the moat
Capital allocation
Questionable
Candour
Neutral
Management puts free cash flow per share at the centre of its language, and it spends most of its cash on capital spending, dividends and buybacks. In 2025 it returned more cash to shareholders than it produced as free cash flow, so part of the payout was funded from cash on hand and new borrowing. Buybacks have shrunk the share count by -1.2% a year, but Buffett's rule asks for repurchases only below intrinsic value, and at $280.11 the share price sits far above the base-case value of $35.64. The filing reports its numbers plainly, but it describes the business as a unique class of companies and defines free cash flow to include CHIPS Act incentive proceeds, which lifts the reported figure. The excerpts do not show how management values its own shares, so we cannot tell whether buybacks were priced with intrinsic value in mind.
4 pass · 3 mixed · 3 fail · 0 can't tell
Capital spending has averaged 2.2× depreciation; estimated maintenance capex was $3.9B last year.
Why this testAt $280.11, the price is above the base-case value of $35.64 (the bear case is $16.66), so there is no margin of safety (-686%). The standard lens asks for 25%.
Discounted owner earnings
Bear
$16.66
Base
$35.64
Bull
$62.39
Price $280.11
The price is above even the bull case.
| Scenario | Starting owner earnings | Growth (yrs 1–5) | Terminal | Discount | Value / share |
|---|---|---|---|---|---|
| bear | $2.5B | -2.9% | 1.5% | 9.7% | $16.66 |
| base | $2.5B | 1.1% | 2.5% | 8.2% | $35.64 |
| bull | $2.5B | 4.1% | 3.0% | 7.2% | $62.39 |
Sensitivity
| Discount ↓ / Growth → | -2.9% | -0.9% | 1.1% | 3.1% | 5.1% |
|---|---|---|---|---|---|
| 6.2% | $45 | $52 | $60 | $70 |
The price is the main problem. At $280.11, the shares trade on 51× earnings and 16× book value, while our two-stage model puts the base case at $35.64 and the bull case at $62.39. Owner earnings yield 1.0%, against a 10-year Treasury yield of 5.2%, so an owner receives less cash each year than a government bond pays. Owner earnings have also fallen at -2.4% a year, so the cash stream the price depends on is not growing. A Buffett-style buyer would want a much lower price, or a clear and lasting rise in cash output, before the business could be judged a sound purchase.
No margin of safety at the current price
Could break the thesislikelyThe base-case value is $35.64 against a price of $280.11, a gap of -686%. Even the bear case of $16.66 sits far below the market price.
Owner earnings yield below the risk-free rate
MateriallikelyAn owner earnings yield of 1.0% sits well below the 5.2% 10-year Treasury yield. If rates stay high, the present value of future cash falls further.
Capital spending absorbs the cash the business makes
MateriallikelyCapital spending has run at 2.2× depreciation, and estimated maintenance capex was $3.9B last year. The filing says that beyond 2026, capital spending depends on revenue and growth expectations, so future spending is not fixed.
Several of Buffett's principles are met and several are not. The circle of competence test is met in outline: the filing explains the products, customers and manufacturing model in plain terms. The durable competitive advantage test is only partly met. The filing names four advantages, including manufacturing cost and switching costs in Embedded Processing, and return on invested capital averaged 45%, but we rate the moat as narrow. Pricing power is the test Buffett treated as most important, and the excerpts do not show it. The risk factors say that rapid technological change 'could contribute to shortened product life cycles and a decline in average selling prices of our products'. The capital intensity test fails: capital spending has averaged 2.2× depreciation, so the business needs heavy spending to stay competitive, which Buffett's gruesome business description warns against. The filing says the company is 'nearing the end of our six-year elevated capital expenditures cycle' and expects lower spending in 2026 than in 2025, but it ties later spending to revenue and growth expectations. The retained earnings test passes, with 9.5× of market value created for each dollar kept. Buybacks have reduced the share count by -1.2% a year, but Buffett bought back shares only below intrinsic value, and at this price the case for buybacks is weaker. On candour, the filing reports its numbers plainly, but it describes the business as 'a unique class of companies capable of generating and returning significant amounts of cash for our owners' and defines free cash flow to include CHIPS Act incentive proceeds. The margin of safety and interest rate tests both fail: the owner earnings yield of 1.0% sits below the 10-year Treasury yield of 5.2%.
Owner earnings and free cash flow in future annual reports, compared with the normalised level of $2.5B
Buffett's test needs cash output to rise, not only reported profit, before the price could be judged sound.
Capital spending in 2026 and any guidance on spending after 2026
The filing ties later spending to revenue and growth expectations. If spending stays high, the cash left for owners stays low.
Gross margin and any comment on product selling prices
The risk factors warn of falling average selling prices. Pricing power is the test that the excerpts do not show.
How the Silicon Labs acquisition is funded and any change in total debt from $14.0B
The filing says the deal will be funded with cash on hand and debt financing, which would add to borrowing and could weaken the debt test.
Whether shareholder payouts continue to exceed free cash flow, and at what share prices buybacks are made
In 2025 the company returned more to shareholders than it generated as free cash flow, so part of the payout was funded from cash on hand and borrowing.
Questions the filings couldn't answer
How this was made
Texas Instruments Inc · financial data to 31 Dec 2025 from SEC XBRL filings, narrative from the 10-K filed 6 Feb 2026. Method [email protected], prompts [email protected]. Judgement by anthropic/claude-haiku-5.5. 33 filing quotes verified. Data completeness 100%. Analysed 20 Oct 2026.
General research. It isn't personal advice. Numbers are computed in code from filings; the model writes no figures. It can still be wrong.
Replicly is a research and education tool. It is not financial advice and does not recommend that you buy or sell any investment. Analyses apply Buffett-inspired principles to public data and can be wrong. Warren Buffett and Berkshire Hathaway are not affiliated with and do not endorse Replicly. Capital is at risk.
“Sales of our Analog products generated about 79% of our revenue in 2025.”
Business · filing
“We have focused on creating a competitive manufacturing structural cost advantage by investing in our 300mm capacity”
Business · filing
“Our customer base is diverse, with about half of our revenue derived from customers outside of our largest 50.”
Business · filing
“It has been characterized by periods of tight supply caused by strengthening demand and/or insufficient manufacturing capacity, followed by periods of surplus inventory”
Business · filing
“Because we own much of our manufacturing capacity, a significant portion of our operating costs is fixed.”
Risk factors · filing
“Rapid technological change in markets we serve could contribute to shortened product life cycles and a decline in average selling prices of our products.”
Risk factors · filing
“The price and product development pressures that result from competition may lead to reduced profit margins and lost business opportunities”
Risk factors · filing
“When factory loadings decrease, our fixed costs are spread over reduced output and, absent other circumstances, our profit margins decrease.”
Management's discussion · filing
“We are nearing the end of our six-year elevated capital expenditures cycle”
Management's discussion · filing
“Despite consolidation, the analog and embedded processing markets remain highly fragmented.”
Business · filing
“The four sustainable competitive advantages are a strong foundation of manufacturing and technology, a broad portfolio of analog and embedded processing products, the reach of our market channels, and diversity and longevity of our products, markets and customer positions.”
Business · filing
“This strategic decision to make manufacturing and technology a core competitive advantage provides us with tangible benefits of lower manufacturing costs and greater control of our supply chain”
Business · filing
“This investment tends to increase the length of our customer relationships because many customers prefer to reuse software from one product generation to the next.”
Business · filing
“Rapid technological change in markets we serve could contribute to shortened product life cycles and a decline in average selling prices of our products.”
Risk factors · filing
“We expect this competition will continue to increase from large competitors and from small competitors serving niche markets, and also from emerging companies, particularly in Asia”
Risk factors · filing
“Because we own much of our manufacturing capacity, a significant portion of our operating costs is fixed.”
Risk factors · filing
“We used $1.48 billion to repurchase 8.5 million shares of our common stock compared with $929 million used in 2024 to repurchase 4.7 million shares.”
Management's discussion · filing
“Dividends paid in 2025 were $5.00 billion compared with $4.80 billion in 2024, reflecting an increased dividend rate.”
Management's discussion · filing
“During 2025, we invested $3.94 billion in R&D and SG&A, invested $4.55 billion in capital expenditures and returned $6.48 billion to shareholders.”
Management's discussion · filing
“Free cash flow is calculated as cash flows from operating activities (also referred to as cash flow from operations) less capital expenditures, plus proceeds from CHIPS Act incentives.”
Management's discussion · filing
“Together, these competitive advantages help position TI in a unique class of companies capable of generating and returning significant amounts of cash for our owners.”
Management's discussion · filing
“our obligation to make principal and interest payments could divert funds that otherwise might be invested in our operations or returned to shareholders”
Risk factors · filing
The owner-earnings yield is 1.0% against a 10-year Treasury yield of 5.2%.
Why this testNo loss years across 15 years of filings, with operating margin varying by 5.4% around its average.
Why this testReturn on equity averaged 48%, reaching 15% in 10 of the years measured; the weakest year was 28%. The ratio is unreliable: several years above 60% point to very little equity rather than extraordinary economics. Debt is high enough that some of that return is borrowed.
Why this testTotal debt of $14.0B would take 5.6 yrs of normalised owner earnings to repay; operating income covers interest 11×. Payback decided this: 4 to 7 years is mixed (interest cover alone would be a pass).
Why this testAfter-tax return on invested capital averaged 45% over 10 years and was 21% in the latest year.
Why this testNormalised owner earnings are $2.5B, and free cash flow has averaged 82% of reported profit.
Why this testEach dollar retained over the period has been matched by 9.5× of market value created ($19.1B retained in total).
Why this testThe diluted share count has changed by -1.2% a year. Shrinking means buybacks are returning value; growing means owners are being diluted.
Why this testRevenue growth (CAGR)
3.2%
Operating margin (avg)
41%
Return on equity (avg)
48%
ROIC (avg)
45%
Cash conversion
82%
Debt payback
5.6 yrs
Share count change (CAGR)
-1.2%
Owner earnings yield
1.0%
| $80 |
| 7.1% | $33 | $39 | $45 | $52 | $60 |
|---|
| 8.2% | $26 | $31 | $36 | $41 | $48 |
|---|
| 9.2% | $21 | $25 | $29 | $34 | $39 |
|---|
| 10.2% | $17 | $20 | $24 | $28 | $32 |
|---|
Green: at least 25% above the price. Amber: above it. Red: below it. n/a means the discount rate is at or below growth, where the model has no finite answer. The corners combine the most extreme assumptions, so treat them as bounds.
Discount rate: 10-year Treasury (5.2%) plus a 3% hurdle. End-of-day prices from free public sources, may be delayed or missing.
Fixed factory costs amplify the cycle
MateriallikelyThe filing says much of the manufacturing capacity is owned, so costs do not fall when demand falls. Operating margin has moved by 5.4% around its average, and owner earnings have swung sharply within the period.
Competition and falling selling prices
MaterialpossibleThe filing names rising competition from Asia and says shortened product life cycles could lower average selling prices. Pricing power is the test Buffett treats as most important, and the excerpts do not show product price trends to settle it.
Large acquisition funded partly with new debt
MaterialpossibleThe agreement to buy Silicon Labs would add debt to a balance sheet that already carries $14.0B of debt, with a payback of 5.6 yrs. Integration could also fail to deliver the expected benefits.
What would change the view
“Beyond 2026, capital expenditures will be dependent on revenue and growth expectations.”
Management's discussion · filing
“Because we own much of our manufacturing capacity, a significant portion of our operating costs is fixed.”
Risk factors · filing
“Rapid technological change in markets we serve could contribute to shortened product life cycles and a decline in average selling prices of our products.”
Risk factors · filing
“We expect this competition will continue to increase from large competitors and from small competitors serving niche markets”
Risk factors · filing
“We expect to fund the transaction with a combination of cash on hand and debt financing to be arranged prior to closing.”
Management's discussion · filing
“We may not achieve or sustain the expected growth, cost savings or other benefits of strategic, business and organizational changes”
Risk factors · filing
“though at a slower pace than prior upturns, likely related to broader macroeconomic dynamics and overall uncertainty”
Management's discussion · filing
“Such incentives could be subject to reduction, modification, clawback or termination”
Risk factors · filing
“Free cash flow is calculated as cash flows from operating activities (also referred to as cash flow from operations) less capital expenditures, plus proceeds from CHIPS Act incentives.”
Management's discussion · filing
“our objective and the best metric for owners to measure our progress is through the growth of free cash flow per share over the long term”
Business · filing
“Until LFAB ramps, we expect Embedded to carry manufacturing costs that disproportionately affect Embedded Processing operating profit as compared to Analog.”
Management's discussion · filing