Analog chip manufacturer Texas Instruments (NASDAQ: TXN) announced better-than-expected revenue in Q3 CY2025, with sales up 14.2% year on year to $4.74 billion. On the other hand, next quarter’s revenue guidance of $4.4 billion was less impressive, coming in 2.7% below analysts’ estimates. Its GAAP profit of $1.48 per share was in line with analysts’ consensus estimates.
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Texas Instruments (TXN) Q3 CY2025 Highlights:
- Revenue: $4.74 billion vs analyst estimates of $4.65 billion (14.2% year-on-year growth, 1.9% beat)
- EPS (GAAP): $1.48 vs analyst estimates of $1.48 (in line)
- Adjusted EBITDA: $2.25 billion vs analyst estimates of $2.25 billion (47.5% margin, in line)
- Revenue Guidance for Q4 CY2025 is $4.4 billion at the midpoint, below analyst estimates of $4.52 billion
- EPS (GAAP) guidance for Q4 CY2025 is $1.26 at the midpoint, missing analyst estimates by 10.2%
- Operating Margin: 35.1%, down from 37.4% in the same quarter last year
- Free Cash Flow Margin: 22.5%, up from 10% in the same quarter last year
- Inventory Days Outstanding: 218, down from 234 in the previous quarter
- Market Capitalization: $163.3 billion
Company Overview
Headquartered in Dallas, Texas since the 1950s, Texas Instruments (NASDAQ: TXN) is the world’s largest producer of analog semiconductors.
Revenue Growth
Reviewing a company’s top-line performance can reveal insights into its business quality. Growth can signal it’s capitalizing on a new product or emerging industry trend. Texas Instruments’s demand was weak over the last two years as its sales fell by 2.4% annually, a tough starting point for our analysis. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions.
We at StockStory place the most emphasis on long-term growth, but within semiconductors, a half-decade historical view may miss new demand cycles or industry trends like AI. Texas Instruments’s performance shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 2.4% annually. 
This quarter, Texas Instruments reported year-on-year revenue growth of 14.2%, and its $4.74 billion of revenue exceeded Wall Street’s estimates by 1.9%. Beyond the beat, we believe the company is still in the early days of an upcycle as this was the third consecutive quarter of growth - a typical upcycle tends to last 8-10 quarters. Company management is currently guiding for a 9.8% year-on-year increase in sales next quarter.
Looking further ahead, sell-side analysts expect revenue to grow 10.1% over the next 12 months. While this projection suggests its newer products and services will fuel better top-line performance, it is still below the sector average.
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Product Demand & Outstanding Inventory
Days Inventory Outstanding (DIO) is an important metric for chipmakers, as it reflects a business’ capital intensity and the cyclical nature of semiconductor supply and demand. In a tight supply environment, inventories tend to be stable, allowing chipmakers to exert pricing power. Steadily increasing DIO can be a warning sign that demand is weak, and if inventories continue to rise, the company may have to downsize production.
This quarter, Texas Instruments’s DIO came in at 218, which is 37 days above its five-year average. These numbers suggest that despite the recent decrease, the company’s inventory levels are higher than what we’ve seen in the past.
Key Takeaways from Texas Instruments’s Q3 Results
It was great to see a material improvement in Texas Instruments’s inventory levels. We were also happy its revenue outperformed Wall Street’s estimates. On the other hand, both its revenue and EPS guidance for next quarter missed, and this outlook is weighing on shares. The stock traded down 5.8% to $170.58 immediately following the results.
Texas Instruments’s earnings report left more to be desired. Let’s look forward to see if this quarter has created an opportunity to buy the stock. What happened in the latest quarter matters, but not as much as longer-term business quality and valuation, when deciding whether to invest in this stock. We cover that in our actionable full research report which you can read here, it’s free for active Edge members.
