Strong results and guidance, but high inventory weighs on gross margin recovery; Goldman Sachs maintains Sell rating on TXN

Overview

This report reviews Texas Instruments Inc.'s 2Q26 results and 3Q26 guidance. Its core conclusion is that the company's results, gross margin, operating margin, and EPS all exceeded market expectations, while 3Q guidance indicates that the analog chip cycle recovery is continuing. However, because TXN's inventory level is relatively high, Goldman Sachs believes its gross margin improvement may lag peers with more proactive inventory management. The stock may therefore trade within a range in the near term, and Goldman maintained its relative Sell rating.

Core views

Goldman Sachs is positive on the fundamental recovery, particularly as approximately 10% QoQ growth in industrial end markets, high-single-digit QoQ growth in automotive demand, and 20% QoQ growth in datacenter revenue all indicate that the improvement in demand is broadening. However, the investment view remains cautious: market expectations had already risen ahead of time due to intraday comments from management and the stock's relative performance. Although TXN's inventory declined by approximately $90mn QoQ to $4.6bn and inventory days fell by 13 days to 196 days, it may still cause gross margin recovery to lag peers such as Microchip and NXP. Goldman therefore prefers peers with greater near-term earnings revision upside rather than TXN.

Analysis framework

The report uses earnings variance analysis, comparison of 3Q guidance, assessment of end-market trends, comparison of inventory and gross margin recovery paths, and evaluation of relative peer valuation and earnings revision potential. For valuation, Goldman Sachs raised the 12-month target price to $225, applying the unchanged 25X P/E multiple to revised normalized EPS of $9.00.

Methodology notes

• Valuation methodsP/E target price method

  25X P/E × normalized EPS

  Goldman Sachs applied a 25X P/E multiple to normalized EPS of $9.00 to derive a 12-month target price of $225. The multiple was unchanged, and the target price increase was primarily driven by raising the EPS estimate from $8.00 to $9.00.

• Fundamental comparisonEarnings and guidance variance analysis

  Deviation of the company's actual results and guidance from Goldman Sachs' forecasts and market expectations

  The report compares 2Q26 revenue, gross margin, operating margin, and EPS, as well as 3Q26 revenue and EPS guidance, with Goldman Sachs' estimates and Visible Alpha market expectations to assess earnings quality and the likely short-term market reaction.

• Relative industry analysisPeer inventory and gross margin recovery comparison

  Impact of inventory management on gross margin leverage during the analog chip recovery

  Goldman Sachs believes certain peers are managing inventory more proactively, and therefore their gross margins and earnings revisions may improve faster than TXN's during the analog chip recovery.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Texas Instruments Inc. (TXN.O)

  Research subject

  Strengths

  Both 2Q26 results and 3Q26 guidance exceeded expectations; demand improved across industrial, automotive, personal electronics, communications equipment, and datacenter markets; management is dynamically adjusting capacity utilization to match demand.

  Weaknesses

  Inventory levels remain high, with 196 inventory days; Goldman Sachs expects gross margin expansion to lag peers with more proactive inventory management; the current target price still indicates downside relative to the disclosed price.

  Comparison

  Goldman Sachs prefers Microchip and NXP, believing they may experience greater near-term earnings revisions during the analog chip recovery.

  Risks

  If end-market demand continues to exceed expectations, market share trends reverse, or gross margin or OpEx leverage is better than expected, the Sell thesis may face upside risk.

• NXP Semiconductors NV

  Peer read-through beneficiary

  Strengths

  Its relatively high automotive exposure may benefit from TXN's incremental positive comments on improving automotive demand.

  Weaknesses

  The report does not discuss NXP's own fundamental weaknesses in detail.

  Comparison

  Goldman Sachs rates NXP Buy and lists it as one of its preferred peers over TXN.

  Risks

  If the improvement in automotive demand cannot continue, the positive read-through may weaken.

• Analog Devices Inc.

  Peer read-through beneficiary

  Strengths

  Its relatively high automotive exposure may benefit from improving analog chip and automotive demand.

  Weaknesses

  The report does not discuss ADI's own fundamental weaknesses in detail.

  Comparison

  Goldman Sachs rates ADI Buy and expects the initial reaction in the analog chip sector to be positive.

  Risks

  A slower-than-expected industry recovery could constrain earnings revisions.

• Microchip Technology Inc.

  Preferred peer of Goldman Sachs

  Strengths

  Goldman Sachs believes its inventory management is more proactive, allowing gross margins and earnings revisions to improve faster than TXN's.

  Weaknesses

  The report does not discuss Microchip's own weaknesses in detail.

  Comparison

  Goldman Sachs explicitly stated that it prefers Microchip and NXP over TXN.

  Risks

  If TXN's gross margin improves faster than expected, its relative peer advantage may narrow.

Key data

• 2Q26 revenue$5.46bnAbove Goldman Sachs' estimate of $5.38bn and the market expectation of $5.26bn.
• 2Q26 gross margin61.4%Above Goldman Sachs' estimate of 59.4% and the market expectation of 59.5%.
• 2Q26 operating margin42.3%Above Goldman Sachs' estimate of 40.9% and the market expectation of 40.5%.
• 2Q26 EPS$2.14Above Goldman Sachs' estimate of $1.99 and the market expectation of $1.94.
• 3Q26 revenue guidance midpoint$5.90bnAbove Goldman Sachs' estimate of $5.65bn and the market expectation of $5.63bn, representing approximately 8% QoQ growth.
• 3Q26 EPS guidance midpoint$2.40Above Goldman Sachs' estimate of $2.14 and the market expectation of $2.18.
• Inventory$4.6bn; 196 inventory daysInventory declined by approximately $90mn QoQ and inventory days fell by 13 days QoQ, but the level remains a key reason why gross margin recovery may lag peers.
• EPS estimate revisionsAverage EPS raised 9% for 2025-2027Primarily reflects higher revenue and gross margin assumptions.
• 12-month target price$225, prior $200Based on 25X P/E and normalized EPS of $9.00.

Impact & implications

The report is modestly positive for near-term sentiment toward the analog chip sector, particularly benefiting NXP, ON, and ADI, which have relatively high automotive exposure. However, the implications for TXN itself are more complex: confirmation of the earnings recovery raised earnings forecasts and the target price, but was insufficient to change Goldman Sachs' concerns about TXN's relative gross margin underperformance and valuation risk.

Risks

• Further improvement in end-market demand across key verticals could drive TXN revenue and earnings above expectations.
• A reversal in TXN's market share trends could weaken the basis for Goldman Sachs' maintained Sell rating.
• Better-than-expected gross margin performance or OpEx leverage could lead to further EPS upgrades.
• If the analog chip recovery broadens faster than expected, stronger demand could absorb TXN's high inventory burden.
• Conversely, if the industrial or automotive recovery slows, the current strong guidance may prove difficult to achieve.

What to watch

• Whether 3Q26 revenue reaches or exceeds the $5.90bn guidance midpoint.
• Whether 3Q26 EPS meets the $2.40 guidance midpoint.
• Whether gross margin can improve from 61.4% in 2Q26 to approximately 62.4% in 3Q26 as forecast by Goldman Sachs.
• Whether absolute inventory and inventory days continue to decline, particularly the pace of improvement from 196 inventory days.
• Whether improvement in industrial and automotive demand continues to spread to more end markets.
• The magnitude of earnings revisions and stock-price reactions among analog chip peers such as Microchip, NXP, ADI, and ON.