Texas Instruments Incorporated (TXN) Income Statement

The sequential acceleration from 18.6% in 2026Q1 to 22.8% in 2026Q2 suggests a cyclical upswing rather than a one-off. However, management's forward guidance of $5.65B-$6.15B implies a potential sequential decline from the reported $5.463B, indicating that the 13% sequential growth may not be sustained. Investors should monitor whether this reflects demand normalization or inventory digestion in key end-markets.

The 350 basis point YoY expansion in gross margin underscores TXN's cost advantage from its internal 300mm fabs. However, the company's high fixed-cost model means margins remain sensitive to utilization; any demand softening could trigger underutilization charges. The recent EPS miss of $2.14 versus $2.42 estimate, despite strong revenue growth, suggests that operating expenses or other costs may be rising faster than gross profit, warranting further investigation into cost discipline.

The operating margin expansion of over 700 basis points YoY indicates that SG&A and R&D costs are scaling slower than revenue, a hallmark of TXN's model. However, the sequential increase in R&D from $510M to $535M and SG&A from $464M to $490M suggests that overhead is creeping up. If revenue growth decelerates as guidance implies, this leverage could reverse, compressing margins.

The modest increase in R&D and SG&A as a percentage of revenue (from 23.0% to 18.6%) reflects efficiency, but the absolute dollar growth suggests TXN is investing for future capacity. The massive capex program for Sherman and Lehi fabs will likely keep depreciation and operating costs elevated, potentially pressuring margins if revenue growth stalls. Investors should monitor whether these expenses are yielding the expected revenue growth or merely absorbing cash.