⚠ The Capital Cycle Ate the ReturnsHigh threat

Texas Instruments (TXN) — threat to the moat

Six years of building the moat cut the return on capital by two-thirds, and it has taken an activist to make that a conversation.

Texas Instruments spent six years and roughly $24 billion building factories, and the return on capital halved while it did.

Return on invested capital, and what caused itWACC ~9%39.0%201940.1%202049.8%202145.8%202227.2%202317.6%202418.6%2025$24bn of capex landing while revenue fell 22% from the 2022 peak. Verdict due around 2028.
Six years of strengthening the moat cut its return by two-thirds.

The numbers are not ambiguous. Return on invested capital was 49.8% in 2021 and 17.6% in 2024, recovering only to 18.6% in 2025.1 Nothing about the moat weakened over that period. What happened is that TI put an enormous amount of capital onto the balance sheet — capex peaked at $5.07 billion in 2023 and was still $4.55 billion in 2025 — while the analog cycle took revenue from $20.03 billion down to $15.64 billion.2 A larger denominator and a smaller numerator, at the same time, by design.

The consequence for the metric management steers by was severe. Free cash flow was $2.94 billion in 2025, 16.6% of revenue, against operating cash flow of $7.15 billion. Elliott Investment Management, which took a stake of more than $2.5 billion in 2024, calculated that free cash flow per share had fallen from $6.40 in 2022 to $1.47 in 2023, and argued that the 2022 capacity plan would leave TI with capacity roughly 50% above consensus revenue expectations in 2026 and 2030.3

TI has since guided 2026 capital spending down to $2–3 billion, from $4.55 billion.4 That is the bull case and the risk in one number: if the fabs fill, the depreciation is absorbed and returns climb back toward the forties. If demand disappoints, TI owns a great deal of expensive capacity it does not need.

Watch return on invested capital rather than revenue. It is the number that tells you whether the fabs were worth building.

The number that tests this threat
Moat Explorer calc
Return on invested capital
49.8% in 2021 to 17.6% in 2024, 18.6% now

A fall of nearly two-thirds while the moat itself was being strengthened. Roughly $24bn of capital expenditure landed on the balance sheet while the analog cycle took revenue from $20.03bn to $15.64bn — a larger denominator and a smaller numerator at the same time, by design. Free cash flow fell to 16.6% of revenue. Watch ROIC rather than revenue: it is the number that says whether the fabs were worth building, and the honest read is due around 2028.

How it's calculated: NOPAT / average operating invested capital from tools_roic_edgar.py. The revenue and capital-expenditure figures are from the FY2025 10-K.
Source: Computed from SEC EDGAR filings ↗
References
  1. Moat Explorer calcReturn on invested capital was 49.8% in 2021 and 17.6% in 2024, recovering only to 18.6% in 2025.
    Return on invested capital for Texas Instruments computed from SEC EDGAR XBRL filings — NOPAT divided by average operating invested capital, where NOPAT is operating income after the effective tax rate and invested capital is total assets less current liabilities less cash. The series for 2015 to 2025 is 23.4%, 27.6%, 29.6%, 43.2%, 39.0%, 40.1%, 49.8%, 45.8%, 27.2%, 17.6% and 18.6%. The decline from the 2021 peak coincides with roughly $24 billion of capital expenditure over the decade to 2025 and a fall in revenue from $20,028M in 2022 to $15,641M in 2024. — 2015-2025 · publ. 2026-02-06 · source ↗
  2. ReportedWhat happened is that TI put an enormous amount of capital onto the balance sheet — capex peaked at $5.07 billion in 2023 and was still $4.55 billion in 2025 — while the analog cycle took revenue from $20.03 billion down to $15.64 billion.
    Texas Instruments Incorporated, Form 10-K FY2025 — consolidated statements of income and segment results. Revenue $17,682M, up $2.04bn or 13.0%; gross profit $10,081M; operating profit $6,023M; other income net $230M; interest and debt expense $543M; income before income taxes $5,710M; provision for income taxes $709M at an effective rate of 12.4% (12.0% in 2024); net income $5,001M against $4,799M in 2024 and $6,510M in 2023. Basic EPS $5.47 and diluted EPS $5.45, against $5.20 and $7.07 in the two prior years, on 913 million diluted shares. By segment, Analog revenue $14,006M (2024 $12,161M, +15%) with operating profit $5,412M (2024 $4,608M, +17%) at 38.6% of revenue (37.9%); Embedded Processing $2,700M; Other the remainder. Revenue peaked at $20,028M in 2022 with operating profit of $10,140M, and troughed at $15,641M in 2024 with operating profit of $5,465M. — FY2025 · publ. 2026-02-06 · source ↗
  3. ReportedElliott Investment Management, which took a stake of more than $2.5 billion in 2024, calculated that free cash flow per share had fallen from $6.40 in 2022 to $1.47 in 2023, and argued that the 2022 capacity plan would leave TI with capacity roughly 50% above consensus revenue expectations in 2026 and 2030.
    Coverage of Elliott Investment Management's stake in Texas Instruments, May 2024. Elliott took a stake of more than $2.5 billion and sent a 13-page letter to the board proposing a dynamic capacity-management strategy that would allow TI to achieve free cash flow of as much as $9 a share by 2026. Elliott's letter focused on the 2022 capital expenditure plan, which called for capital spending to ramp to as much as $5 billion a year from 2023 to 2026 — as much as 23% of revenues, against roughly 5% over the preceding decade — and argued that a reversal in demand since the plan was set would leave capacity levels around 50% above consensus revenue expectations in 2026 and 2030. By Elliott's analysis, free cash flow per share fell from $6.40 in 2022 to $1.47 in 2023. Texas Instruments' chief executive subsequently signalled alignment with the proposals rather than contesting them, and suggested the company could reach $12 per share in 2026. — 2024 · publ. 2024-05-28 · source ↗
  4. ReportedTI has since guided 2026 capital spending down to $2–3 billion, from $4.55 billion.
    Coverage of Texas Instruments' second-quarter 2026 results, July 2026 — revenue of $5.46 billion, up 23% year over year and 13% sequentially against consensus near $5.24 billion; net income of $1.98 billion, up 53%, and EPS of $2.14, up 52% and above the high end of guidance. By segment, Analog revenue was $4.37 billion (up 26%), Embedded Processing $788 million (up 16%) and Other $310 million (down 2%). Industrial revenue grew more than 30% year over year across all sectors and regions, automotive re-accelerated, and data centre revenue roughly doubled. Management guided third-quarter revenue to $5.65-6.15 billion and confirmed 2026 capital expenditure of $2-3 billion, declining to bias the range toward the lower end. After holding pricing flat through the first half, TI began executing customer-by-customer price increases from the third quarter, extending into the fourth quarter and into 2027, concentrated in Analog. Management has framed free cash flow per share of $8 or more as probable for 2026, having earlier suggested $12. The shares fell after hours. — Q2 2026 · publ. 2026-07-24 · source ↗
Sources
Generated September 23, 2026