Not All Chip Stocks Are Benefiting Equally From AI. This Investor Wants That to Change. – The Average Joe

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    Not All Chip Stocks Are Benefiting Equally From AI. This Investor Wants That to Change.

    victorlei

    May 28, 2024

    Texas Instruments ($TXN) investors knocked… They’re wondering why one of the most important chipmakers hasn’t benefited from the AI boom lifting other chip stocks. One hedge fund, Elliott Management, thinks it has the answer. Yesterday, the activist investor disclosed a $2.5B stake in Texas Instruments and urged the company to boost its free cash flow.

    • According to Elliott’s letter, the company has underperformed “despite TI’s reputation as one of the best-managed semiconductor companies with strong growth prospects and competitive advantages.”
    • While $TXN’s 17% return has surpassed the S&P 500’s 11% this year, it lags behind the semiconductor industry — with the iShares Semiconductor ETF ($SOXX) up 30% year-to-date.

    Bring back the cash: In the latest quarter, Texas Instruments’ revenue fell 16.4% year-over-year, and net income dropped over 35%. This decline comes two years after the company announced a major investment into US manufacturing — nearly doubling its capital expenditures to about $5B. This investment has left less money for dividends and share buybacks, prompting Elliott to call for increased free cash flow. However, it’s unclear if TI’s new friend is asking them to prioritize shareholder returns over business growth.

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