Texas Instruments' profitability may be disappointing over the next few years, according to Oppenheimer.
On Wednesday, analyst Rick Schafer lowered his rating for Texas Instruments shares (ticker: TXN) to Perform from Outperform. He also removed his prior $195 price target.
"In the near/medium-term we see sustained margin pressure as mgmt. invests in capacity," he wrote.
Texas Instruments shares fell 0.8% to $156.41 in morning trading Wednesday. The company did not immediately respond to a request for comment on the report.
The chip maker sells the basic chips that go into products in nearly every sector of the economy from autos and industrials to consumer electronics.
Schafer expects Texas Instruments' gross profit margin to fall to 63% in the third quarter, which would be a drop of about seven percentage points since early 2022. He's also concerned that the chip maker's factories will be under utilized as the company expands capacity amid lackluster demand. Texas is also facing tough competition from China, the analyst says.
"We see TXN well-positioned for LT analog competitiveness in core auto/industrial end-markets," he wrote. But we are "moving to the sidelines for now."
Texas Instruments is scheduled to report third quarter results on Oct. 24.
Its stock is down 6% this year, compared with a 40% rise for the iShares Semiconductor exchange-traded fund (SOXX). The ETF tracks the performance of the ICE Semiconductor Index.