Texas Instruments produced a beat-and-raise quarter, with autos and personal electronics doing well (versus expectations), but a sharp drop in communications.
Management commented on signs of market stabilization, but the market has already priced a robust multiyear recovery into analog stock valuations.
I like TI’s self-help potential on margins, but expectations are already so high, I’m not confident the shares can continue to outperform.
At this point, chip stock bulls really need to hope that there’s not so much as a stumble for the growth trajectories for new cars, 5G, new smartphones, and industrial automation, as the stocks by and large already reflect a very robust rebound scenario that leaves little room for disappointment. Texas Instruments (TXN), which does admittedly lean toward the conservatism with its commentary, didn’t exactly fan the flames, acknowledging with fourth-quarter earnings that its markets have largely “stabilized”, while offering guidance that was slightly above expectations for the first quarter of 2020.
I’ve written before that I believe a number of quality chip companies, including Infineon (OTCQX:IFNNY), Microchip (MCHP), Maxim (MXIM), ON (ON), and STMicroelectronics (STM) have run up too aggressively in anticipation of this recovery, leaving upside tied to further acceleration in end-market demand – an acceleration that may be at risk giving what companies are saying about their 2020 outlooks. In any case, specific to TI, I can’t say that I see much value here, and if I had to own an overpriced chip stock, I suppose TI’s well above-average quality would be an argument in its favor.