To The Moon

$Texas Instruments(TXN)$ announced its Q2 results yesterday, blowing past expectations both in earnings and guidance, sending its shares up nearly 3% in pre-market trading.

Revenue Down

Specifically, Texas Instruments' revenue was $3.822 billion in Q2, down 15.6% year on year, slightly exceeding the median guidance of $3.65 to $3.95 billion given by management, and slightly exceeding analyst expectations of $3.82 billion:

The Longest Downturn

Texas Instruments' products are heavily geared towards industrial and automotive markets, which saw a massive inventory build-up by customers amid COVID-19 supply chain disruptions. Now, as the pandemic eases and global demand softens, these sectors are grappling with destocking.

Texas Instruments has been on a downward slide for seven straight quarters, and management predicts a 9.5% YoY decline for Q3, with revenue expected to land within $39.4−$42.6 billion. This could very well be Texas Instruments' longest downturn ever!

But there's a silver lining: Management noted that customer inventories are normalizing, especially in China, where Q2 saw a roughly 20% quarter-on-quarter growth. However, the recovery isn't even across the board, other markets are still in the early stages.

Given the cyclical nature of the semiconductor market, a downturn typically precedes an upswing that can last around a year and a half. Texas Instruments' inventory levels have been stable for four quarters straight, hinting that as destocking wraps up across regions, an upcycle is imminent.

Valuation Grow

In addition, $Morgan Stanley(MS)$ 's Global PMI has been above the 50-mark for six consecutive months, and with the Fed poised to embark on a rate-cutting spree, the automotive and industrial sectors are poised for a boost.

Valuation-wise, Texas Instruments' Price-to-book ratio still has plenty of room to grow from its historical highs.