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Texas Instruments Incorporated TXN shares have dropped 11.2% over the past month, significantly lagging the Zacks Computer and Technology sector’s 4.5% gain. While such a sharp decline may worry investors, the weakness is not unique to Texas Instruments.

Several semiconductor stocks have also come under pressure during the same period. Companies such as Amtech Systems ASYS, QUALCOMM QCOM and STMicroelectronics STM have also struggled during the same period. Amtech Systems, QUALCOMM and STMicroelectronics have fallen 16.6%, 18.8% and 27%, respectively. This broad-based sell-off suggests that investors are pulling back from semiconductor stocks as a whole rather than losing confidence in Texas Instruments specifically.

TXN One-Month Price Return Performance

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The recent decline is largely due to two concerns. First, investors are questioning whether hyperscalers will generate sufficient returns from their massive artificial intelligence (AI) investments. Second, semiconductor stocks enjoyed a strong rally earlier in 2026, pushing valuations higher and encouraging investors to lock in profits.

Despite this negative sentiment, Texas Instruments' underlying business remains strong. The company continues to execute well, and its long-term growth drivers are intact. For long-term investors, the recent pullback could present an attractive buying opportunity rather than a reason to stay away.

TXN’s Strong Financial Results Reinforce the Bullish Thesis

Texas Instruments continues to deliver impressive financial results. Second-quarter 2026 revenues increased 23% year over year, while non-GAAP earnings per share jumped 52%. These numbers indicate that demand is improving across multiple end markets.

Texas Instruments also expects the momentum to continue. For the third quarter, management projects revenues between $5.65 billion and $6.15 billion, representing roughly 25% year-over-year growth at the midpoint. Earnings are expected to be between $2.23 and $2.57 per share, implying nearly 62% growth at the midpoint. The guidance reflects healthy demand across several markets, particularly those tied to AI infrastructure.

Wall Street shares the same optimism. The Zacks Consensus Estimate calls for continued revenue and earnings growth in both 2026 and 2027, reinforcing confidence that the company's growth story is far from over.

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AI Chip Demand Continues to Power Texas Instruments' Growth

Texas Instruments is not competing with NVIDIA or AMD in AI accelerators, but it is quietly becoming an important beneficiary of the AI boom. The company supplies analog and embedded chips that perform critical functions inside AI infrastructure. These chips manage power, process signals, regulate cooling systems, control motors and enable connectivity across data centers, industrial equipment and automotive applications.

As AI servers become larger, faster and more power-intensive, demand for these components continues to rise. Every new AI data center requires significantly more power management and sensing chips than traditional computing systems, creating a growing opportunity for Texas Instruments.

Instead of competing in the crowded AI processor market, the company is benefiting from the broader AI infrastructure buildout. This positions Texas Instruments to capture AI spending regardless of which GPU maker ultimately dominates the data center market.

The numbers already reflect this trend. Texas Instruments' data center business reached an annual revenue run rate of approximately $1.2 billion in 2025, growing more than 50% year over year. During the second quarter of 2026, data center revenues doubled from the prior-year quarter and increased 20% sequentially. Such strong growth suggests AI infrastructure could become an increasingly important revenue driver over the coming years.

TXN Eyes Competitive Lead Through Internal Manufacturing

Texas Instruments is also strengthening its long-term competitive position through its manufacturing strategy. Unlike many semiconductor companies that depend heavily on third-party foundries, Texas Instruments plans to produce more than 95% of its wafers internally by 2030.

Although this approach requires significant upfront investment, it offers meaningful long-term benefits. Greater control over manufacturing should improve supply-chain reliability, lower production costs over time and help protect margins during industry shortages.

Government support further strengthens this strategy. Texas Instruments expects to receive up to $1.6 billion in CHIPS Act funding, with total lifetime benefits estimated between $7.5 billion and $9.5 billion. These incentives should reduce expansion costs while boosting profitability over the long run.

TXN’s Strong Cash Generation Supports Shareholder Returns

Texas Instruments' ability to generate cash remains one of its biggest strengths. Over the past 12 months, the company generated $8.67 billion in operating cash flow and $6.53 billion in free cash flow. It also finished the second quarter with $7 billion in cash and short-term investments, giving it ample financial flexibility.

This strong cash position allows the company to invest aggressively in manufacturing expansion while continuing to reward shareholders.

During the first half of 2026, Texas Instruments returned nearly $1.45 billion through dividends and share repurchases. Over the past year, total shareholder returns approached $6 billion. Few semiconductor companies are able to invest heavily for future growth while consistently returning such large amounts of cash to investors.

Solid Growth Projections Justify TXN’s Premium Valuation

Texas Instruments is not a bargain stock. It currently carries a Value Score of D, reflecting its premium valuation.

TXN currently trades at a forward 12-month P/E ratio of 29.91, well above the sector average of 20.74. Compared with other semiconductor leaders, Texas Instruments also trades at a higher earnings multiple than STMicroelectronics, Amtech Systems and QUALCOMM. At present, STMicroelectronics, Amtech Systems and QUALCOMM are trading at P/E multiples of 24.04, 21.65 and 14.01, respectively.

Texas Instruments Forward 12-Month P/E Ratio

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However, premium valuations are often justified when a company consistently delivers earnings growth, generates strong cash flow and maintains durable competitive advantages.

Texas Instruments fits that profile. The company continues to benefit from expanding AI infrastructure spending, generates substantial free cash flow, maintains a healthy balance sheet and has a long track record of rewarding shareholders through dividends and share buybacks. Those strengths make its premium valuation easier to justify.

Conclusion: Buy Texas Instruments Shares

Texas Instruments appears well-positioned to benefit from the ongoing expansion of AI infrastructure, growing data center investments and its differentiated manufacturing strategy.

While the stock is not inexpensive, its premium valuation reflects the quality of the business. Strong earnings growth, rising AI-driven demand, healthy cash generation and consistent shareholder returns support a positive investment case.

Currently, Texas Instruments sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.