What happened
Shares of Texas Instruments (TXN -0.53%) climbed 12.3% last month, according to data provided by S&P Global Market Intelligence, due to positive news that lifted the entire semiconductor industry. Taiwan Semiconductor (TSN -0.76%) manufactures microchips for many of the largest companies in the industry, so its results are considered a bellwether. On Nov. 10, Taiwan Semiconductor released a better-than-expected monthly sales result, which lifted stocks across the industry. There wasn't any major news about Texas Instruments specifically, but investors became more optimistic about the economic conditions influencing the company.
So what
Taiwan Semiconductor's October sales grew 1% over the prior month, which was much better than many investors had feared. That had a huge impact on Taiwan Semiconductor, but it also rippled throughout the industry as a whole. That impact is apparent when Texas Instruments' price chart is compared to major semiconductor exchange-traded funds.
TXN Total Return Level data by YCharts
Demand for microchips has tumbled this year. Electronics companies spent two years working hard to fix supply chain disruptions and return manufacturing output to pre-pandemic levels. This was fine when demand was strong, but high inflation and slowing economic growth have hurt demand for electronics among consumers and businesses alike. The sudden deterioration of demand led to higher inventories and slashed prices, and that weakness is moving up the chain to semiconductor producers.
Texas Instruments has held up well compared to some of its peers, reporting 13% revenue growth last quarter. However, the company notes weakness among personal electronics and industrial customers. That shadow is hanging over the sector in general, but any major news that contradicts the bearish narrative can send the entire peer group higher.
Image source: Getty Images.
Now what
Texas Instruments now sports a 22.5 forward P/E ratio and 13.7 enterprise-value-to-EBITDA ratio. It also provides a 2.7% dividend yield, with a sustainable payout ratio around 50%. None of those metrics suggest that the stock is particularly cheap or expensive. Analysts expect the company's sales and profits to fall next year due to the challenging macroeconomic environment, so it's hard to see a clear short-term catalyst for the stock.
Texas Instruments still has substantial long-term opportunities in automotive and industrial computing applications, which now make up around two-thirds of the company's revenue. Those markets are likely to remain disrupted for the next few quarters, but those should yield positive results as the cycle rebounds. Long-term investors can enjoy a healthy dividend yield as they wait out the current storm.
