Texas Instruments' Broad-Based Boom: Data Center Doubles, Auto Joins, and Pricing Finally Bites

Q2 2026 shows industrial +30%, data center +100%, and the start of price increases, but the stock sits 20% off its June peak.

TXN · Earnings Call · 2026-07-22

The Cycle Broadens: Data Center Doubles, Auto Turns

Texas Instruments' Q2 2026 report was a confident stride into a broadened upcycle. Revenue hit $5.5B, up 23% YoY and 13% sequentially, but the composition is what stands out. Industrial grew ~30% YoY, and the data center business doubled—confirming that AI-driven power demand remains a secular tailwind. The real change, however, was automotive: “we are seeing demand growing to the automotive market” — Haviv Ilan · 2026-07-22 after months of a shallow trough. Haviv attributed the inflection to a combination of low customer inventories and EV/hybrid adoption led by China. It's the first time since the cycle turn that all three core markets (industrial, data center, auto) are firing simultaneously.

Pricing Power Finally Kicks In

After repeatedly flagging stable-but-declining pricing as the base case, management confirmed the turn. “We have started executing price increases, yes.” — Haviv Ilan · 2026-07-22 These are being negotiated customer-by-customer, with Q3/Q4 contributions and further resolution at year-end annual discussions. This is a genuine inflection: in January's call, Haviv had said pricing would remain down low-single-digit for 2026, but in April he noted the market was "definitely at least an average price increase" building. The Q2 confirmation moves it from anticipated to realized—a positive for gross margin trajectory.

It will be dependent on the customer. Some of it will start to play in, in Q3, but I expect that to continue into the fourth quarter.
Haviv Ilan · 2026-07-22

The pricing power is supported by capacity readiness. Management repeatedly emphasized the clean room availability and the ability to ramp loadings quickly. Julie Knecht noted that loadings increased in Q2 and will continue to be managed dynamically against demand.

Free Cash Flow and Capital Returns

Rafael Lizardi, on his final call, highlighted a $6.5B trailing-12-month free cash flow, up from $1.8B a year earlier, including $1.6B of CHIPS Act incentives. This aligns with the long-term framework: “Free cash flow on a trailing 12-month basis was $6.5 billion” — Rafael Lizardi · 2026-07-22. The gross margin expanded 340bps sequentially to 61%, but the market's reaction has been muted. The stock is down 20% from its June peak, despite the strong fundamentals, reflecting broader market worries about AI capex sustainability and a potential second-half slowdown. Yet management's guide for Q3 (revenue $5.65–6.15B) is above seasonal, with EPS of $2.23–2.57.

Market Tape vs. Company Reality

The 90-day price tape shows a +44% run into late June, then a -13% pullback. That drawdown coincides with a rotation in the tape: in the last 30 days, many data center keywords have tumbled, but TI's own content growth narrative remains intact. The disconnect is striking: the company is guiding above seasonal with broad-based demand, yet the market is pricing in caution. As Haviv summed up: "This time, it's just easy. It's everywhere". The setup is classic—strong fundamentals, a tempering tape, and a management team that has prepared for exactly this cycle with revenue now pushing past prior peaks.