Bank of America has moved to higher ratings for two major analog semiconductor suppliers, saying initial signs point to a recovery in industrial demand alongside stronger pull from data centers, aerospace and automotive markets.
Texas Instruments (TXN) was upgraded to Neutral from Underperform, a move that coincided with a premarket increase of about 5% in the company's shares. The brokerage also raised its price objective for TXN to $235 from $185 after management issued guidance that topped expectations. BofA noted TXN's Q1 revenue outlook of roughly $4.5 billion was ahead of consensus and bucked the typical seasonal slowdown - a performance the bank attributed to a healthier industrial mix and tighter capital expenditure control.
Alongside the rating change, BofA increased its 2026 and 2027 earnings estimates for Texas Instruments by 8% and 7%, respectively. The bank pointed to recovering backlogs and heightened exposure to data center power and connectivity products, which now represent about 9% of TXN's sales. On TXN's commentary, BofA said: "TXN commentary was more optimistic than extremely bullish, likely because of last year’s mixed trends." The analysts added: "We positively highlight management’s commentary re improving backlog, order trends, data center strength and potential for continued FCF growth."
Microchip Technology (MCHP) received an upgrade to Buy from Neutral, with BofA lifting its price target to $95 from $78. The bank described Microchip as offering the most earnings leverage among analog peers as industrial demand rebounds, noting that nearly half of the company's revenue is tied to industrial end markets, including aerospace and defense.
BofA raised Microchip's 2026 and 2027 earnings estimates by 8% and 13%, respectively, and said margins could recover meaningfully as volumes improve and costs normalize. The broker also highlighted Microchip's exposure to data center markets - including products used in AI-related infrastructure - as an additional growth catalyst.
More broadly, BofA suggested that analog names with less crowded investor positioning could benefit if industrial inventories are rebuilt and shipments recover from depressed levels. The bank emphasized a structural tailwind from rising demand in data centers and autos as supportive factors for the sector.
Implications for markets and sectors
- Semiconductor and analog chip sectors may see renewed investor interest if the recovery narrative gains traction.
- Industrial, data center, automotive and aerospace markets are identified as sources of demand that could drive revenue and margin improvement for analog suppliers.
- Company-level cash flow and margin trajectories may hinge on backlog resolution, order momentum and normalization of costs and volumes.