TXN Q3 Deep Dive: Data Center Momentum Amid Moderating Industrial Recovery and Cautious Outlook

Analog chip manufacturer Texas Instruments (NASDAQ:TXN) reported Q3 CY2025 results exceeding the market’s revenue expectations, with sales up 14.2% year on year to $4.74 billion. On the other hand, next quarter’s revenue guidance of $4.4 billion was less impressive, coming in 2.7% below analysts’ estimates. Its GAAP profit of $1.48 per share was in line with analysts’ consensus estimates.

Is now the time to buy TXN? Find out in our full research report (it’s free for active Edge members).

StockStory’s Take

Texas Instruments' third quarter was met with a negative market reaction, as investors weighed the mixed signals from end-market performance and margin pressures. Management attributed revenue growth to ongoing recovery across most segments, especially strong gains in industrial, automotive, and data center-related enterprise systems. CEO Haviv Ilan noted, “Analog revenue grew 16% year over year, and embedded processing grew 9%,” while also acknowledging that the recovery is “continuing, though at a slower pace than prior upturns.” Cost controls, plant restructuring, and efforts to optimize inventory also shaped profitability this quarter.

Looking ahead, management’s guidance for the next quarter reflects concerns about the pace of recovery and customer hesitancy, particularly in industrial markets. Ilan cautioned that customers remain in a “wait and see mode,” with ongoing uncertainty around macroeconomic trends, tariffs, and capital investments. The company’s strategy involves moderating factory loadings and closely managing inventory, while continuing to invest in growth opportunities in industrial, automotive, and especially data center segments, which management highlighted as the fastest-growing area for the business.

Key Insights from Management’s Remarks

Management emphasized that broad-based growth in Q3 was tempered by a slowing recovery in industrial markets and ongoing cost discipline, while highlighting data center strength and operational changes driving future efficiency.

• Industrial market stabilization: The industrial segment, which delivered about 25% year-on-year growth, saw only low single-digit sequential gains following a strong second quarter. Management attributed this moderation to customers reaching normalized inventory levels and increased hesitancy around new investments, reflecting broader macroeconomic caution.
• Data center and enterprise surge: Texas Instruments cited enterprise systems, which include data center-related products, as a key growth engine—up approximately 35% year-on-year and 20% sequentially. CEO Haviv Ilan identified data center as the fastest-growing market, running at a $1.2 billion annualized rate, and announced plans to break out this segment in future reporting.
• Automotive demand resilience: Automotive revenues increased by high single digits sequentially and upper single digits year-on-year, with growth described as consistent across all regions. Management noted content growth and stable demand as drivers, even as other markets exhibited more cyclicality.
• Operational restructuring: The company incurred restructuring charges tied to the closure of its last 250-millimeter fabrication plants and the consolidation of some R&D sites. These actions, aimed at long-term efficiency, are expected to gradually reduce expenses and support future gross margin improvement.
• Inventory and customer service focus: Inventory days outstanding fell, and management stressed that inventory levels are now optimized to meet customer needs without further build-up. This enables Texas Instruments to maintain short lead times and high service levels, even as factory loadings are moderated to align with demand.

Drivers of Future Performance

Texas Instruments’ outlook is shaped by a moderate recovery pace, customer caution in industrial markets, and ongoing investment in data center, automotive, and operational optimization.

• Industrial and customer hesitancy: Management believes customers remain in a “wait and see” mode, which could moderate demand in the industrial segment. The company sees this behavior stemming from uncertainty around tariffs, capital expenditures, and global economic conditions, potentially limiting near-term revenue growth.
• Data center expansion: The data center market is expected to be the main driver of growth, with management noting over 50% year-to-date growth in this segment. Texas Instruments plans to prioritize investments in data center products and will provide more detailed reporting to reflect its increasing importance.
• Cost structure and capacity management: The ongoing closure of older manufacturing facilities and consolidation of R&D operations are anticipated to deliver gradual cost savings. Management aims to keep inventory flat to slightly down by adjusting factory loadings, which should help preserve margins and free cash flow even if revenue growth remains subdued.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will be watching (1) the pace of demand recovery in industrial and automotive markets, (2) the continued expansion and reporting of the data center business as a distinct growth driver, and (3) the realization of cost savings from operational restructuring and plant closures. Effective inventory management and progress on new product launches in targeted end markets will also be important indicators of Texas Instruments’ ability to deliver on its long-term strategy.

Texas Instruments currently trades at $165.13, down from $181.06 just before the earnings. In the wake of this quarter, is it a buy or sell? Find out in our full research report (it’s free for active Edge members).

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