Shares of Texas Instruments (TXN 3.63%)a maker of analog and embedded chips, rose as much as 4.1% on Wednesday before falling to just 3% by 12:18 p.m. ET. Still, this was a much larger gain than the broader semiconductor sector, with the iShares Semiconductor ETF (SOXX 1.89%) At that time, the rate was only about 0.7 percent.

Texas Instruments on Tuesday provided a half-year update on its long-term spending plans, something the company typically does only once a year. But the analog chip industry is currently in one of the worst downturns in its history, and the company acknowledged that by lowering the lower limit of its long-term spending plan first unveiled for 2022.

An increased investment cycle at the worst possible time

Following supply chain shortages in 2021, Texas Instruments launched a long-term spending plan that would increase its capital spending to around $5 billion per year over four years, from 2023 to 2026. The idea was to invest in U.S. capacity for key semiconductors used in a wide range of industrial and automotive applications, while reducing the cost per chip.

The company has made the strategic decision to focus on industrial and automotive applications, which accounted for 75% of its revenue in 2023, compared to only 40% in 2014.

The problem is that Texas Instruments made these long-term plans at a time when demand for industrial and auto chips was booming in 2022 amid shortages. Yet now those end markets are in one of their worst downturns ever.

In fact, the company even said that unit demand is currently worse than in 2019, the last downturn. It is rare in the chip world for a cyclical low to be deeper than the previous one.

Image source: Texas Instruments.

The combination of weak demand and high expenses has currently reduced the company’s free cash flow to nearly zero – in contrast to the billions in flows its investors typically see each quarter.

Management finally seemed to realize that its markets may not be as robust as it thought. In the rare mid-year update to long-term planning that typically comes only once a year, management left its spending plans for 2024 and 2025 unchanged, but lowered its 2026 spending forecast from $5 billion to $2 billion to $5 billion, depending on sales performance at that time.

Apparently, this recognition of market conditions and the reduction in spending is encouraging investors today.

Texas Instruments is strangely at an all-time high

The company has lagged the semiconductor market recently due to its lack of exposure to AI trends, but the stock is trading near its all-time high.

This may seem counterintuitive given the sharp downturn we are currently experiencing. But chip stocks tend to move oddly in anticipation of cycles, rather than during them.

Still, the company also updated its outlook for free cash flow per share under various recovery scenarios for 2026, which ranges from $8 to $12. Texas Instruments’ long-term track record of cash flow and dividend growth certainly makes the company a good long-term investment, but with a share price of $208 today, or about 20 times the median 2026 recovery scenario, shares seem more like a hold than a buy today.