TXN fundamentals (FCF/dividends) are strong, but valuation is high and most upside is priced in; neutral to slightly bearish on near-term gains.

Now we have Texas Instruments, who in a lot of ways is pretty much the complete opposite of Broadcom. Not necessarily from a business perspective, but from a performance perspective.

Over the last 5 years or so, the stock is only up about 38%. And you can see from late 2021, really till early 2026, the price performance was extremely choppy. It was very volatile and ultimately went nowhere.

And then all of a sudden, the stock price surged from around $150, $160 a share and peaked at $332 a share in the summer of 2026. Now, in the last few months alone, we've seen a little bit of a pullback from those peaks, but the stock is still up 46.8% this year.

Well, if you've been watching the channel for a while now, you might have a little bit of an idea because I've been talking about this stock for a few years now, and it's a stock that's done pretty well for me personally. I'm up about 78% on this position.

So, what's the story behind Texas Instrument stock and is it still an opportunity? Well, if you jump over to their website, I actually love what they state. They're very focused on capital management and they even have a whole presentation dedicated strictly to this.

And really, they state what I preach all the time. Running the company with the mindset of a long-term owner. They believe the growth of free cash flow per share is the primary driver of long-term value.

And after a credit of investments in the business to grow free cash flow for the long term, the remaining cash will be returned over time via dividends and share repurchases.

And historically speaking, that's exactly what they've done. And they've grown dividends at a high rate as well. You can see just back in 2016, dividends are about 38 cents per share. by 2026, $142. So, we're talking about rapid dividend growth.

Now, right now, the yield is sitting at about 2.18%. And keep in mind, that's after we saw a huge run up in the share price. So, it wasn't that long ago this stock was yielding well above 3%.

But what's the story behind the share price? Again, very choppy over the last 5 years and then surged forward in 2026. Well, this is going to give us a little bit of a breakdown.

If we start to scroll down, here's where they're at with their capital allocation right now. Like they stated, they're reinvesting heavily back into the business. This has been planned for a while, then paying out dividends and buying back shares.

Now, if we scroll down, we're going to get a little more of a picture of what this actually looks like. This image has been the ultimate goal for Texas Instruments. But to really understand it, you need to back up for a moment.

If we jump back over to forecaster, let's talk about capital expenditures for a moment for Texas Instruments. If we jump over to the fundamentals tab and go to financial statements, go to the statement of cash flows and scroll down.

If you scroll down far enough, you're going to find the capex spending for the stock.

Now, what you'll notice is historically speaking, this was a relatively capitalized business. Not a lot of capital expenditures, which made free cash flow generation relatively easy.

But what we can see is capex spending ramped up heavily starting in around 2021. They went through a period of heavy capex spending. But that capex spending has started to reduce.

Now, why is capex important? Why are we looking at this specific metric? Well, remember the free cash flow formula. It's simple. It's operating cash flows minus capital expenditures equals free cash flow.

And like we just saw, free cash flow is the ultimate driver of intrinsic value. More specifically, free cash flow on a per share basis. So, we don't like to see high levels of capex spending unless it creates more growth opportunities.

And that's exactly what Texas Instruments was aiming to do.

What we can see here is the sales price of an example part of a 200 millimeter wafer versus a 300 millimeter wafer. And what you'll notice is the gross margins on these are radically different.

In fact, the chip cost is 40% less on 300 mm. Now again, the ultimate goal of this is to unlock higher revenue growth streams down the road.

And what you'll notice is they're projecting out what their estimated capex spending will look like in 2026. Again, you can see that downward trend is continuing. So, not only will free cash flow growth start to speed up due to organic revenue growth, but also the margins are going to start rapidly improving on the back end.

So, this image right here is the most important image to truly understand Texas Instruments. Again, free cash per share, the ultimate driver of their intrinsic value. And what you can see charted out here is it was growing at a high rate.

And historically speaking, the stock did extraordinarily well as a result.

here is it was growing at a high rate. And historically speaking, the stock did extraordinarily well as a result. I mean, take a look at the long-term returns for Texas Instruments over the last 20 years. They're up over 716%.

But as they enter that time period of elevated capex spending, you can see free cash flow per share cratered. So we see all these other stocks on the market right now ramping up capex spending.

A lot of the hyperscaler stocks. Well, Texas Instruments was early to that game. And it cost free cash flow per share to drop substantially.

But here's their target range now. All of a sudden, they're on track to deliver more than $8 of free cash flare at their current 2026 revenue consensus. Now, for reference, they were sitting just a little bit above five or $6 per share before the period of elevated capex spending.

So, that's roughly a 33% increase in free cash flow per share.

And so, if that trend continues, that compounding effect for Texas Instruments is back. And remember, dividends and share buybacks are the result of growing free cash flow per share.

So when we see this history of growing dividends 22 consecutive years in fact while the payout ratios looked ugly over the last few years with free cash flow per share lower ultimately this is still a safe dividend.

In fact we should continue to expect to see nice levels of dividend growth moving forward. And not just dividend growth but we should continue to see some level of share buybacks.

Now it's been a little bit less over the last few years but we're talking about a company that since 2004 reduced its shares outstanding by 47%. Think about what that means for a moment. by basically reducing their shares outstanding, cutting it in half.

It causes all the other per share metrics to essentially double.

When done correctly, share buybacks are incredible for dividend growth investors. Now, with that being said, we hear debates of share buybacks versus dividends being paid out all the time, and they both have their pros and cons.

I'm I'm a big fan of both of them when they're done properly. But one thing we do need to point out, if you're someone looking to live off dividends, I have good news because dividends are much more sustainable in their payouts. management is much more committed to them versus share buybacks which can fluctuate by a wide amount year-over-year.

So when we look at Texas Instruments and look at free cash flow over the last 5 years, yes, it's cratered, but now we understand the story of why and we can see free cash flow is quickly recovering and free cash per share is expected to

Of course, as a result, we should continue to expect dividends to increase. But the one caveat to all this is the valuation because again it's the opposite of Broadcom. We can see the valuation was quite low during this heavy capex spending period.

The market didn't seem to like it. But now that the market can see the light that these capex spending is starting to pay off. The stock has jumped substantially and the price to earnings multiple is now sitting at 39.5 on a trailing 12-month basis.

But again it's because what the market knows. What was that guidance that management gave us? management pointed to the fact that free cash flow per share could easily be 33% higher than its pre-elevated capex spending era. So the market is pricing this in accordingly.

So when we look at fair value based on forecasters assumptions, we can see it has it at about $236 a share with the DCF model pointing to a fair value of 271.8.

If we simply look at a sensitivity analysis again, assume that they achieve their projected EPS cagger of about 9.3 and even if the PE multiple pulls all the way back to 30, you can still see 2030 2031 compounded returns around 7% which keep in mind when you include the nice starting yield on the dividend of about 2% that pushes it above 9% total.

So, it's still trading at a reasonable valuation, but obviously this is a stock I've been talking about really for the last 3 or 4 years now and added some shares at what I think is a pretty good valuation.

And my portfolio, to be fair, has certainly reaped the benefit.

But what's ironic is nobody was talking about Texas Instruments in 2024, 2025. It wasn't until the stock started to take off that it started getting media attention again. And so while the valuation isn't too unreasonable right now, the stock has realized a lot of its upside.

Now, with that being said, it's interesting because we saw a huge sell-off of the stock in Q1 of 2026. But of course, that is when the stock started to see a huge run up in the share price.

But over the last couple of quarters, we've started to see members of Congress start to buy again.