Texas Instruments (TXN) reported "very strong" Q1 results, however, ongoing high capital spending and valuation concerns keep the long-term outlook cautious, Morgan Stanley said in a note Thursday.
Management highlighted broad-based strength across the business and noted there was no clear pull-ahead activity. Still, results for the March and June quarters were significantly above-seasonal, which creates some caution looking ahead and sets a high bar for the September quarter, usually the strongest of the year, the bank said.
The firm added that it is giving Texas Instruments credit and modeling to seasonality for the rest of 2026 and 2027, because H2 2026 is expected to be stronger than H1, with pricing likely becoming more important and possible supply tightness giving the company a share opportunity.
The bank said the bullish view was that after five years of high capital expenditure, the company would generate more free cash flow than earnings in 2027, but comments on the earnings call suggest high spending may continue into 2027 unless revenue slows. "Further, we have expected the acquisition of [Silicon Laboratories (SLAB)] to drive something of a negative re-rating, given the importance of cash return to the story."
Morgan Stanley adjusted Texas Instruments' price target from $180 to $221 while keeping its underweight rating.
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