Texas Instruments (NASDAQ:TXN) announced its highest-ever second-quarter revenue on Wednesday, with earnings and cash flow metrics significantly exceeding analyst expectations. Despite the strong results, shares dipped approximately 3% in after-hours trading, reflecting cautious market sentiment amid broader semiconductor sector volatility.
Record Revenue and Earnings Beat
The Dallas-based chipmaker posted revenue of $5.46 billion for the quarter ended June 30, a 23% increase from $4.45 billion in the same period last year. This figure surpassed the consensus estimate of $5.26 billion. Earnings per share (EPS) rose 52% to $2.14, ahead of the $1.94 forecast by analysts. The EPS included a five-cent gain not covered in initial guidance.
Cash Conversion Improves Dramatically
A key highlight was the company's cash conversion. Operating cash flow increased by 45% to $2.70 billion, while capital expenditures declined by 61% to $514 million. This resulted in free cash flow of $2.74 billion, as defined by TI (operating cash flow minus capex plus CHIPS Act grants). Excluding $850 million in CHIPS incentives, cash after capital expenditures totaled $1.89 billion, up from $352 million a year earlier. That represented 95% of reported net income, a significant improvement from 27% in the prior year.
Segment Performance
Analog sales climbed 26% to $4.37 billion, with operating profit surging 50%. Embedded-processing revenue grew 16% to $788 million. CEO Haviv Ilan attributed the results to "broad growth led by industrial, data center and automotive." Operating margin expanded by 7.1 percentage points to 42.3%.
Guidance and Market Reaction
Texas Instruments provided third-quarter guidance above consensus. The company expects revenue between $5.65 billion and $6.15 billion, with a midpoint of $5.90 billion, nearly 5% above the consensus estimate of $5.63 billion. EPS is projected between $2.23 and $2.57, with a midpoint of $2.40, roughly 10% higher than the $2.18 forecast. The stock closed regular trading up 1% at $294.19 before the after-hours decline. Shares have gained approximately 68% year-to-date in 2026.
Broader Context and Risks
The report comes amid a volatile period for semiconductor stocks. The Philadelphia semiconductor index closed 20% below its record high from June 22. TI itself declined 8.8% in the week to July 17. Upcoming peer reports include STMicroelectronics (NYSE:STM) on July 23 and NXP Semiconductors (NASDAQ:NXPI) on July 28. Risks remain, including potential declines in industrial and automotive orders, low factory utilization weighing on margins, and timing fluctuations in CHIPS Act payments. The cash conversion metric will be closely watched by investors as grants fluctuate.
