TXN Q3 profit surges 78% on broad chip recovery, but valuation still rich

What happened

Texas Instruments reported Q3 net income of $2.43 billion, up 78% year over year, on revenue of $6.06 billion, a 28% increase, with EPS of $2.62 versus $1.48 a year earlier. Revenue rose sequentially from Q2's $5.46 billion, indicating continued momentum across industrial, automotive, and data center markets. The results exceed the midpoint of prior guidance and suggest factory utilization improvements are translating directly into margin expansion. However, the stock already trades at 41.8x earnings and 31.9x EV/EBITDA, so the report validates rather than surprises the market. Key remaining questions are whether inventory days decline from 196 and whether gross margin can hold above 61% as the recovery matures.

Implication

The Q3 results confirm broad-based demand recovery and suggest the company is on track to meet its revenue and earnings targets. However, the stock's valuation already reflects much of this improvement, with limited upside from here unless data-center growth accelerates or margins expand beyond expectations. Investors should monitor inventory days, which remained high at 196 days in Q2, and whether they decline meaningfully in Q3. The Silicon Labs acquisition and upcoming capex reduction are additional variables that will shape free cash flow generation. A disciplined approach would be to wait for a better entry near $245 or for evidence that the recovery is not purely restocking-driven.

Thesis delta

The Q3 report strengthens the base case that industrial, automotive, and data-center recovery is broadening, supporting higher utilization and margins. However, the earnings beat was likely already anticipated given the stock's recent run, and the valuation remains extended at ~42x earnings. The thesis remains WAIT, with no change to the trim or entry levels; the key watchpoint shifts to inventory reduction and margin sustainability over the next two quarters.