Texas Instruments (TXN) Q4 2025: Data Center Revenue Jumps 64%, Shifting Portfolio Mix
Texas Instruments’ Q4 2025 results confirmed a strategic portfolio shift as data center revenue soared and industrial momentum continued, offsetting softness in personal electronics and communications equipment. Management emphasized inventory flexibility and capacity investments as key levers for navigating real-time demand and cyclical uncertainty. Guidance signals cautious optimism, with secular content growth in industrial, automotive, and data center markets expected to drive long-term value creation.
Summary
- Data Center Mix Shift: Data center growth is accelerating TI’s transition toward higher-value, secular growth markets.
- Inventory Flexibility: Management’s inventory positioning enables rapid response to volatile customer demand.
- Secular Content Growth: Industrial, automotive, and data center remain central to TI’s long-term strategy and capital allocation.
Performance Analysis
Texas Instruments delivered Q4 2025 results in line with expectations, with revenue of $4.4 billion, up 10% YoY but down 7% sequentially. Analog revenue led, growing 14% YoY, while embedded processing rose 8%. The “other” segment continued to decline, underscoring TI’s focus on core growth engines. Segment performance revealed a clear strategic tilt: industrial and automotive each contributed 33% of annual revenue, while data center surged to 9% of the mix at $1.5 billion, up 64% YoY. Personal electronics and communications equipment lagged, with personal electronics down upper teens YoY in Q4 and communications equipment also contracting.
Gross margin contracted 150 basis points sequentially to 56%, reflecting a mix of lower utilization and end-market softness. Operating profit margin held at 33%, with operating expenses up 3% YoY, consistent with capacity expansion and R&D investment. Free cash flow for the year nearly doubled, reaching $2.9 billion and reflecting both improved operational efficiency and a $670 million CHIPS Act benefit. Inventory days rose to 222, with management positioning this as a strategic buffer for volatile demand, particularly in high-turn “just-in-time” segments.
- Data Center Outperformance: Data center revenue grew for the seventh consecutive quarter, now materially impacting TI’s revenue mix.
- Industrial and Auto Stability: Industrial up high teens YoY in Q4, automotive up upper single digits, both anchoring TI’s secular growth thesis.
- Personal Electronics Weakness: Upper teens YoY and mid-teens sequential declines in personal electronics highlight ongoing cyclicality and competitive pressure.
TI’s capital returns remained robust, with $6.5 billion returned to shareholders over the past year through dividends and buybacks, underlining confidence in free cash flow durability and capital allocation discipline.
Executive Commentary
"The overall semiconductor market recovery is continuing, and we are well positioned with inventory and capacity to meet immediate customer demand... We see good opportunities in all of our markets, but we place additional strategic emphasis on industrial, automotive, and data center."
Haviva Lahn, Chairman, President, and Chief Executive Officer
"We’re nearing the end of a six-year elevated capex cycle that uniquely positions TI to deliver dependable, low-cost, 300-millimeter capacity at scale... Our free cash flow growth reflects the strength of our business model, as well as our decisions to invest in 300-millimeter manufacturing assets and inventory."
Rafael Lazzardi, Chief Financial Officer
Strategic Positioning
1. Data Center as a Growth Engine
Data center, now 9% of revenue, is TI’s fastest-growing segment, up 64% YoY and growing for seven consecutive quarters. TI’s analog and embedded products are increasingly critical in power delivery and signal chain within hyperscale data centers. Management highlighted investments in BCD (bipolar-CMOS-DMOS, a power semiconductor process) as enabling TI to address high-current sockets and expand its share of next-gen compute infrastructure. The company expects continued data center CapEx to fuel further content growth.
2. Industrial and Automotive Anchors
Industrial and automotive now represent two-thirds of revenue, each at $5.8 billion for the year. The industrial segment benefited from broad-based recovery and “secular content growth,” driven by automation and electrification. Automotive, while seasonally soft in Q1 due to Chinese New Year, is anchored by rising chip content per vehicle, including in internal combustion engine (ICE) models. Management remains confident in long-term content growth despite cyclical fluctuations.
3. Inventory and Capacity as Strategic Levers
TI’s elevated inventory position and flexible loadings enable real-time support for volatile customer demand, especially in high-turn sectors. Management described inventory as an “asset” that allows for immediate response to customer orders, with 222 days on hand. The ramp of the Sherman fab and insourcing progress at Lehigh further position TI for scalable, cost-effective supply as demand recovers. CapEx will taper from the recent high cycle, but ongoing investment in 300-millimeter manufacturing remains a core advantage.
4. Capital Allocation Discipline
TI’s approach to capital returns—$6.5 billion in the past year—reflects a focus on maximizing long-term free cash flow per share. Dividend growth (now 22 consecutive years) and opportunistic buybacks signal confidence in the business model. Management continues to prioritize investments that reinforce manufacturing scale, technology breadth, and channel reach.
5. Pricing and Market Dynamics
Unlike some peers, TI expects overall pricing to decline low single digits in 2026, citing no step function increases and ongoing annual negotiations. This stance positions TI as a volume-driven supplier focused on share and content gains, rather than price-led margin expansion.
Key Considerations
TI’s Q4 results and commentary reveal a company in transition, leveraging manufacturing scale and end-market diversity to weather cyclical noise and capitalize on secular trends. Investors should weigh the following:
- Data Center Diversification: Rapid growth in data center is shifting TI’s revenue mix toward higher-growth, less cyclical verticals.
- Inventory Buffering: Elevated inventory days provide flexibility but also risk if demand slows, especially in volatile end markets.
- CapEx Normalization: The end of the elevated CapEx cycle could boost free cash flow, but ongoing investments in 300-millimeter capacity remain critical for long-term competitiveness.
- Pricing Environment: TI’s expectation for low single-digit price declines contrasts with peer commentary, potentially impacting margin dynamics across the analog sector.
- End-Market Cyclicality: Continued weakness in personal electronics and communications equipment highlights the importance of TI’s strategic pivot to industrial, auto, and data center.
Risks
TI faces cyclical volatility in industrial and auto, persistent weakness in personal electronics, and potential inventory risk if demand softens unexpectedly. The company’s sizable inventory and recent capacity investments could become a drag if end-market recoveries stall. Competitive pricing and customer substitution remain ongoing risks, especially as peers signal price increases and supply chain constraints.
Forward Outlook
For Q1 2026, Texas Instruments guided to:
- Revenue of $4.32 to $4.68 billion
- EPS of $1.22 to $1.48
For full-year 2026, management maintained its outlook for:
- Effective tax rate of 13% to 14%
- CapEx of $2 to $3 billion, with depreciation of $2.2 to $2.4 billion
Management cited order strength, backlog build, and ongoing industrial and data center recovery as key guideposts, while cautioning that Q1 is typically seasonally soft for automotive in China and that pricing will remain a modest headwind.
- Order trends and backlog improved through Q4, supporting above-seasonal Q1 guidance.
- Secular content growth in industrial, automotive, and data center expected to drive outperformance over the cycle.
Takeaways
TI’s Q4 results underscore a strategic shift toward higher-growth, less cyclical markets, with data center now a material driver and industrial/auto anchoring stability. Inventory and capacity investments provide flexibility, but also require careful demand management as the cycle evolves.
- Portfolio Mix Shift: With data center and industrial now comprising a majority of revenue, TI is less exposed to consumer cyclicality and more positioned for secular tailwinds.
- Operational Agility: Inventory and manufacturing flexibility are enabling TI to capture real-time demand, but also heighten sensitivity to macro swings.
- Watch for Margin Dynamics: Investors should monitor price trends, utilization rates, and loadings for signals on profitability as CapEx moderates and demand visibility evolves.
Conclusion
Texas Instruments enters 2026 with a stronger mix, robust capital returns, and operational levers to navigate volatility. The company’s focus on industrial, automotive, and data center content growth, paired with disciplined capital allocation, positions it for outperformance if secular trends persist and end-market recoveries hold.
Industry Read-Through
TI’s data center momentum and inventory strategy provide a template for analog peers seeking to diversify away from consumer cyclicality and capture secular infrastructure growth. The company’s reluctance to pursue aggressive price hikes signals potential margin pressure across the sector, especially as competitors test pricing power. Broader industry read-through points to the importance of flexible supply chains, real-time demand response, and end-market diversity as semiconductors become increasingly embedded in industrial, automotive, and hyperscale compute applications. Investors should watch for similar portfolio shifts and capital allocation discipline among analog and mixed-signal suppliers in the coming quarters.