Texas Instruments Incorporated (TXN) DCF Valuation & Fundamental Primer
Texas Instruments Incorporated (TXN) currently trades at $177.17 with an enterprise value of $212.78B. Our proprietary institutional model rates Texas Instruments Incorporated at 77/100 (Grade: A · High-Quality Compounder). The current market price prices in an implied 5-year revenue CAGR of 18.8% vs. historical growth of 27.3% (Substantial Margin of Safety).
Institutional fundamental teardown of Texas Instruments Incorporated (TXN) covering SEC 10-K/10-Q cash flow conversion, SBC dilution friction, and Reverse-DCF valuation hurdles.
Texas Instruments Incorporated (TXN) 3-Scenario DCF Valuation Range
Stress-test TXN's 5-year growth, target FCF margin, WACC, terminal methodology, and SBC/dilution friction in real time.
Split between 5-Year Explicit Cash Flows and Discounted Terminal Value
2D Institutional Valuation Sensitivity Heatmap
Implied share price & upside/downside spread across 25 valuation states (Current Price: $177.17).
| WACC \ Terminal | 1.5% | 2.0% | 2.5% | 3.0% | 3.5% |
|---|---|---|---|---|---|
| 8.5% | $268.51 +52% | $285.62 +61% | $305.58 +72% | $329.17 +86% | $357.48 +102% |
| 9.3% | $240.81 +36% | $254.29 +44% | $269.76 +52% | $287.71 +62% | $308.79 +74% |
| 10.0% | $218.06 +23% | $228.89 +29% | $241.18 +36% | $255.21 +44% | $271.40 +53% |
| 10.8% | $199.05 +12% | $207.91 +17% | $217.84 +23% | $229.06 +29% | $241.82 +36% |
| 11.5% | $182.94 +3% | $190.29 +7% | $198.45 +12% | $207.58 +17% | $217.84 +23% |
Institutional Software Quality Scorecard (77/100 · Grade A)
Strong fundamentals, above-average cash generation, and robust competitive positioning.
Elite deferred revenue float; FCF exceeds operating income by >20%
Elevated equity dilution; SBC consumes substantial operating cash flow
High-quality software margins with healthy balanced growth and profitability
Positive net cash cushion; self-funding operations with zero insolvency risk
Core Investment Strengths & Moats
- High-grade cash conversion: FCF is 206% of EBIT driven by upfront annual collections
- Healthy unit economics: 74.6% gross margin
- Net cash positive: $6.35B balance sheet buffer
Key Operational & Dilution Risks
- Substantial SBC dilution drag: SBC is 17.1% of revenue ($4.92B)
Reverse-DCF Solver: What Growth is Priced Into TXN?
The current share price only requires 18.8% 5-year CAGR (36.3% dilution-adjusted), well below historical growth of 27.3%. If the company maintains baseline execution, there is asymmetric upside.
Headline Reverse-DCF ignores Stock-Based Compensation (17.1% of revenue) and annual share dilution (1.8%/yr). Accounting for both requires 36.3% 5-year revenue CAGR to justify $177.17/sh on a true per-share economic cash flow basis.
Texas Instruments Incorporated (TXN) 5-Year Fundamental Forecast
| Statement Line Item | TTM Audited Base | TTM | Y1 | Y2 | Y3 | Y4 | Y5 |
|---|---|---|---|---|---|---|---|
| Revenue | $28.75B | $28.75B | $36.59B | $46.58B | $59.30B | $75.49B | $96.10B |
| Gross Profit | $21.44B | $21.44B | $27.30B | $34.75B | $44.24B | $56.32B | $71.69B |
| Operating Income (EBIT) | $2.85B | $2.85B | $3.62B | $4.61B | $5.87B | $7.47B | $9.51B |
| Stock-Based Compensation (SBC) | $4.92B | $4.92B | $6.26B | $7.97B | $10.14B | $12.91B | $16.43B |
| Unlevered Free Cash Flow (FCF) | $5.86B | $5.86B | $7.47B | $9.50B | $12.10B | $15.40B | $19.60B |
| SBC-Adjusted True Cash Flow | $948.6M | $948.6M | $1.21B | $1.54B | $1.96B | $2.49B | $3.17B |
Software & Cloud Services Peer Comparables & Rule of 40 Regression
Rule of 40 vs. EV / Revenue Multiple Regression
OLS Fit: EV/Rev = -33.1 + 0.86 × (Rule of 40) · R² = 78%Stocks below the gold regression line trade at a discount relative to their Rule of 40 compounding efficiency.
| Company | Ticker | Market Cap | TTM Revenue | Gross Margin | FCF Margin | Rule of 40 | SBC % Rev | EV / Rev |
|---|---|---|---|---|---|---|---|---|
| Texas Instruments Incorporated | TXN | $160.98B | $28.75B | 74.6% | 20.4% | 47.7% | 17.1% | 5.4× |
| ServiceNow | NOW | $152.61B | $10.98B | 79.2% | 31.1% | 54.2% | 15.9% | 13.9× |
| Workday, Inc. | WDAY | $50.35B | $8.00B | 75.0% | 27.4% | 43.9% | 19.0% | 6.4× |
| Salesforce | CRM | $217.10B | $37.90B | 77.2% | 32.8% | 42.8% | 8.4% | 5.8× |
| Datadog | DDOG | $46.05B | $2.68B | 80.8% | 31.1% | 57.7% | 21.3% | 17.4× |
| Snowflake Inc. | SNOW | $71.79B | $3.63B | 66.5% | 25.2% | 57.7% | 40.8% | 20.0× |
| Hubspot | HUBS | $19.89B | $2.63B | 85.0% | 21.3% | 52.7% | 19.2% | 7.7× |
| Peer Cohort Median Benchmark (N=6) | 78.2% | 29.2% | 53.5% | 19.1% | 10.8× | |||
EV / Revenue Multiple Compression Stress Test
| Multiple Scenario | EV / Revenue | Implied Enterprise Value | Implied Equity Value | Implied Share Price | Delta vs Current |
|---|---|---|---|---|---|
| Current Multiple | 5.4× | $154.63B | $160.98B | $177.17 | 0.0% |
| -20% Multiple Compression | 4.3× | $123.70B | $130.06B | $143.13 | -20.0% |
| -35% Multiple Compression | 3.5× | $100.51B | $106.86B | $117.61 | -35.0% |
| Software Baseline Floor (5.0× EV/Rev) | 5.0× | $143.73B | $150.09B | $165.18 | -7.0% |
Frequently Asked Questions: Texas Instruments Incorporated (TXN) Valuation
What is Texas Instruments Incorporated (TXN)'s intrinsic DCF valuation and implied share price?
Based on audited SEC 10-K/10-Q filings and a 5-year 3-statement discounted cash flow (DCF) model, Texas Instruments Incorporated (TXN) has a Base Case implied value of $241.18 per share (with a Bear Case of $95.86 and a Bull Case of $461.28), compared to its current price of $177.17. The model discounts projected free cash flows at a 10.0% WACC and a 2.5% terminal growth rate.
What is Texas Instruments Incorporated (TXN)'s Rule of 40 score and Free Cash Flow margin?
Texas Instruments Incorporated achieves a Rule of 40 score of 47.7%, combining a 27.3% revenue growth run-rate with a 20.4% TTM free cash flow margin on $28.75B in trailing twelve-month revenue. In the Software & Cloud Services peer cohort, the median Rule of 40 benchmark is 53.5%.
What revenue growth rate is priced into TXN stock according to Reverse-DCF analysis?
At $177.17 per share (Enterprise Value of $154.63B), our Reverse-DCF solver indicates the market is pricing in a 5-year implied revenue CAGR of 18.8%, compared to Texas Instruments Incorporated's historical CAGR of 27.3%. Overall market expectations are rated as "Substantial Margin of Safety".
How does Texas Instruments Incorporated compare to Software & Cloud Services software peers?
Texas Instruments Incorporated (TXN) earns an institutional Software Quality Score of 77/100 (Grade A — High-Quality Compounder). Across its Software & Cloud Services peer group (NOW, WDAY, CRM, DDOG, SNOW), the cohort trades at a median EV/TTM Revenue multiple of 10.8× and a median gross margin of 78.2%.
How does Stock-Based Compensation (SBC) impact Texas Instruments Incorporated (TXN)'s valuation?
Texas Instruments Incorporated recorded $4.92B in TTM stock-based compensation (17.1% of revenue). When treating SBC as a cash-equivalent compensation expense, Texas Instruments Incorporated's SBC-adjusted free cash flow yield is 0.6%, scoring 10/25 on our Shareholder Dilution Friction pillar.