Buffet Radar: Buy Texas Instruments (TXN)
Texas Instruments, or TI primarily sells lower-end analog and embedded chips for the automotive, industrial, personal electronics, communications, and corporate markets. Because they include key wireless and power management functionality, these chips are more affordable to produce than higher-end circuits like CPUs or GPUs. TI produces its analog chips in-house, although it also contracts with outside chipmakers to produce certain of its embedded circuits.
The PC industry, which is presently experiencing a terrible post-pandemic slump, is not one to which Texas Instruments has considerable exposure. Instead, the auto and industrial sectors—which accounted for 62% of its revenue last year—are where it gets the majority of its growth.
As the two markets were affected by the COVID-19 pandemic in 2020, TI's revenue increased by less than 1%. But in 2021, as the automotive and industrial industries rebounded, its revenue increased by 27% to $18.34 billion. Strong 5G smartphone sales accelerated such a rise. However, as it navigates the post-pandemic rebound and contends with sporadic COVID lockdowns in China, supply chain hiccups, and macro challenges across the industrial sector, TI's sales growth has been slowing down this year.
On the plus side, $TXN, which primarily sells lower-end chips, is largely immune to the Biden Administration's most recent export restrictions on advanced semiconductors to China. Moreover, since it manufactures most of its chips in the US, it should also be eligible for subsidies and tax advantages under the recently passed CHIPS Act.
According to analysts, TI's earnings would increase this year before falling in 2023 as macroeconomic headwinds worsen. However, the downturn in the PC industry and the restrictions on the shipment of cutting-edge chips to China are causing problems for both Intel and AMD.
TI is protected from both headwinds, which may account for its greater valuation, even though its growth will slow down in 2023 as it deals with additional macroeconomic difficulties.
Source: Yahoo Finance