TXN's high valuation relative to the sector limits potential gains; the speaker avoids buying it despite strong business performance.

It is Texas Instruments, the long-established chipmaker, ticker symbol TXN, in which Cohen bought shares worth more than $340 million during the last quarter.

Looking at the price chart here, we can see that the stock saw a significant rise at the beginning of the year. But it actually dropped a little. Sorry, I lost the screenshots, but yes, the stock has lost about a quarter of its value since that peak.

Its performance has remained almost unchanged over the past five years, which is not considered good performance in our modern technology market, especially for a chip company's stock, is it?

Some of these stocks were experiencing a significant rise.

This latest decline is due to investor concerns about the third-quarter outlook, with management predicting sales will fall slightly short of analysts' expectations, mainly because recent price increases will not be fully recorded in the books until the fourth quarter.

But if we look at the bigger picture, the current upward trend is very strong for TXN, whose business is not aimed at competing with companies like Nvidia or AMD in the field of smarter and faster AI processors, but rather dominates what are known as analog chips.

These chips play a pivotal role in the AI infrastructure boom. When giant technology companies operate thousands of AI processors that consume enormous amounts of power, they typically rely on analog TXN chips to manage electrical power from the grid and prevent these systems from overheating.

The recent surge in demand for artificial intelligence has led to a significant boost in the company's financial performance, with sales jumping 23 % in the last quarter and earnings per share rising 52%.

But the most notable indicator was in the data center sector, where sales related to it doubled compared to last year. While many other chip manufacturers rely almost entirely on a few large buyers, TXN sells a wide range of more than 80,000 different products to around 100,000 customers worldwide.

This great diversity in the size of its business has enabled it to generate net free cash flow of US$6.5 billion over the past twelve months.

While other tech giants are spending huge sums to expand into artificial intelligence and its infrastructure, which is alienating many investors, TXN cut its capital expenditures by 60% in the last quarter to about half a billion dollars.

This cash flow also enables it to distribute generous dividends, currently exceeding 2%, and has continued to grow for more than two consecutive decades.

But here’s the thing: as great as this business has been over the years, the valuation is what’s really stopping me from buying the shares. They’re trading at a price far above the sector average by most measures, and that’s not something I’m willing to tolerate right now for a company operating in such a cyclical sector and incurring huge fixed costs to own and operate its own plants.

In my opinion, any significant rise you might expect from a tech stock like this at this valuation is unlikely to materialize. I don't think it will skyrocket, or at least it won't be as strong as some of the other names in the market that I find more attractive or better priced.

In addition, I would like to say that I already own a large number of shares in semiconductor companies, and even more in the fields of artificial intelligence and technology in general, so I do not need more at the moment.

I don't know how to rank them in relation to the other stocks on this list, because I feel my interest in these three stocks has been almost constant and similar to each other, but for the purposes of our official list, I will put TXN stock between the first two stocks based on interest only.

Therefore, we will move Snowflake up to second place, put Texas in third, and leave TXN in fourth place temporarily.