As AI chip stocks stumble: Why is this analog maker still up 76% in a year?

The AI chip market is experiencing a divide, with concerns over data center spending driving down shares in Advanced Micro Devices (AMD) and Texas Instruments (TXN). Yet, the latter continues to thrive, with a 76.1% increase over the past year. This performance is driven by a 28% revenue growth in the latest quarter.

Investors are flocking to analog chipmakers, recognizing the demand for their products in AI servers and electric vehicles. Texas Instruments, in particular, has been performing well, with a 28% revenue increase in Q3, now at $6.06 billion. The company's gross margin expanded to 64%, and operating profit hit $2.9 billion.

Guidance for the fourth quarter also exceeded expectations, with revenue forecasts of $5.8 billion to $6.3 billion. The company's free cash flow has more than tripled to $8.4 billion, a result of the CHIPS Act incentives and in-house manufacturing on 300mm wafers, which reduces chip costs by about 40%. Analysts project free cash flow of $9 to $10 per share in 2027.

Texas Instruments' stock trades at a reasonable price, with a PEG ratio of 0.99, below the 42.3 times for Analog Devices. The average analyst price target is $336.86, about 21% above the current price. The company's profitability score is 7.8 out of 10, and cash flow covers its quarterly dividend, which has been increased 23 times consecutively.

Despite risks, including multiple compression and high capital spending, Texas Instruments remains a strong performer. Its 64% gross margin and strong free cash flow demonstrate the company's resilience, even as AI processor stocks lose value. For just $9 a month, ProPicks AI subscribers can gain access to strategies that continue to select companies like Texas Instruments, despite market fluctuations.