1 Top Tech Stock to Buy in October

Key Points

• Texas Instruments just raised its dividend again, extending a two-decade streak.

• Industrial and automotive end-markets are stabilizing, with management guiding to steady third-quarter revenue.

• The stock's valuation looks reasonable next to its cash-rich model and long dividend runway.

• 10 stocks we like better than Texas Instruments ›

Texas Instruments (NASDAQ: TXN) is best known for analog and embedded chips that go into everything from factory equipment and cars to medical devices and power systems. After a choppy stretch for its semiconductors, the Dallas-based manufacturer has begun to show clearer momentum this year while keeping its focus on long-term cash generation and consistent shareholder payouts. That combination -- improving fundamentals and dependable capital returns -- puts the shares back on my buy list for October.

It also helps that the company just sweetened its income story. In mid-September, Texas Instruments lifted its quarterly dividend by 4% to $1.42 per share, marking 22 consecutive years of increases. Trading at about $183 as of this writing, that works out to a dividend yield a touch above 3%. For a high-quality chipmaker with wide end-market exposure, that's compelling.

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Learn More »

Image source: Getty Images.

Momentum is returning

The company's latest earnings update showed evidence of a cyclical recovery taking hold. Second-quarter revenue came in at about $4.45 billion, up 16% year over year and 9% sequentially. Capturing its profitable model, gross margin was roughly 58%, with operating margin near 35%.

Under the hood, the business mix looked healthier. Revenue from its analog and embedded processing segments grew 18% and 10% year over year, respectively, with sales to the industrial market growing at a year-over-year rate in the upper teens and sales to the automotive market rising at a rate in the mid-single digits.

Texas Instruments CEO Haviv Ilan framed the backdrop plainly during the second-quarter earnings call: "The semiconductor cycle is playing out. Cyclical recovery is continuing, while customer inventories remain at low levels."

That read-through -- low customer inventories alongside improving turns -- supports the idea that orders can stay resilient as the sector normalizes.

Management also reiterated its long-standing financial north star. As CFO Rafael Lizardi put it, the objective is "long-term growth of free cash flow per share." That lens drives the company's heavy 300-mm manufacturing investments, designed to widen structural cost advantages over time. Near term, those fabs keep capital expenditures elevated; over a multi-year horizon, however, they should support higher margins and more cash to return to shareholders.

Looking ahead, management guided third-quarter revenue to a range of $4.45 billion to $4.8 billion, signaling steady demand even after a strong June quarter.

A reasonably priced compounder

Trading at about 34 times earnings, the stock isn't a bargain. But context matters.

First, earnings are temporarily depressed by the industry cycle and by the company's outsized investment program; using today's trough as the denominator can, in a way, overstate the price-to-earnings multiple in the context of the broader cycle. Second, with a balance of pricing power, scale manufacturing, and broad industrial and auto exposure, Texas Instruments has historically converted a high share of revenue into free cash flow, providing key support for a shareholder-friendly dividend that has grown every year for more than two decades.

But there's a reason the stock hasn't performed well this year. The company's third-quarter outlook -- while solid -- reflected some caution after June's strength, including the possibility of China pull-ins that may not repeat. Additionally, geopolitics and tariffs can reshape demand patterns for some regions. And, of course, the multi-year spend on new capacity weighs on near-term free cash flow and could prove mistimed if the recovery stalls. But those risks look manageable against the company's manufacturing flexibility, inventory position, and diversified end-markets.

Even when considering the risks, Texas Instruments looks like a good investment idea. It is emerging from the downcycle with improving revenue trends, expanding gross margin, and there's a clear line of sight to stronger cash generation as utilization climbs. Further, the dividend, now $1.42 per quarter, offers a starting yield of approximately 3% and is supported by a long history of increases, with potential for continued growth as free cash flow normalizes.

Should you invest $1,000 in Texas Instruments right now?

Before you buy stock in Texas Instruments, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Texas Instruments wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $650,607!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $1,114,716!*

Now, it’s worth noting Stock Advisor’s total average return is 1,068% — a market-crushing outperformance compared to 190% for the S&P 500. Don’t miss out on the latest top 10 list, available when you join Stock Advisor.

See the 10 stocks »

*Stock Advisor returns as of September 29, 2025

Daniel Sparks and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Texas Instruments. The Motley Fool has a disclosure policy.