Texas Instruments' third-quarter 2026 numbers show that a large share of the revenue gain reached operating profit. On the company's reported figures, revenue growth has risen in each 2026 quarter, gross margin has expanded every quarter, and about 92% of the year-over-year revenue increase in Q3 showed up as operating income. Three quarters of data is a short series, so the read here is about direction and mechanics, not about what the trend will be next year.
Revenue growth is building, not fading
| Quarter | 2025 revenue ($M) | 2026 revenue ($M) | YoY growth |
|---|---|---|---|
| Q1 | 4,069 | 4,825 | 18.6% |
| Q2 | 4,448 | 5,463 | 22.8% |
| Q3 | 4,742 | 6,055 | 27.7% |
Year-over-year growth went from 18.6% in Q1 to 22.8% in Q2 and 27.7% in Q3, so on these three data points it is accelerating. Nine-month revenue was $16,343M against $13,259M, up 23.3%. The sequential pattern is also clear: Q4 2025 revenue fell to $4,423M from $4,742M in Q3 2025, and 2026 has risen in each quarter since Q1. The 2025 annual report describes the 2025 upturn as slower than prior cycles, so the 2026 acceleration is a change from that pattern.
Margins: gross margin did most of the work
| Quarter | Gross margin 2025 | Gross margin 2026 | Operating margin 2025 | Operating margin 2026 |
|---|---|---|---|---|
| Q1 | 56.8% | 58.0% | 32.5% | 37.5% |
| Q2 | 57.9% | 61.4% | 35.1% | 42.3% |
| Q3 | 57.4% | 64.2% | 35.1% | 47.5% |
Gross margin rose about 1.2 points in Q1, 3.5 points in Q2 and 6.8 points in Q3, year over year. Operating margin rose about 5.0 points, 7.2 points and 12.4 points. The Q4 2025 base was lower still, with gross margin near 55.9% on $4,423M of revenue, so the expansion began from a soft exit rate.
The 2025 MD&A says gross margin fell to 57.0% from 58.1% because higher manufacturing costs tied to capacity expansions offset gains from higher factory loadings. Read alongside the 2026 gross-margin path, that suggests the factory loading benefit has started to dominate. The 2026 filing data available here does not include an MD&A that confirms the cause, so this is an inference, not a reported explanation.
Operating leverage: most of the Q3 revenue gain reached operating income
| Period | Change in revenue ($M) | Change in operating income ($M) | Incremental conversion |
|---|---|---|---|
| Q1 2026 vs Q1 2025 | 756 | 484 | 64% |
| Q2 2026 vs Q2 2025 | 1,015 | 747 | 74% |
| Q3 2026 vs Q3 2025 | 1,313 | 1,211 | 92% |
| Nine months | 3,084 | 2,442 | 79% |
Conversion rose each quarter, from 64% in Q1 to 74% in Q2 and 92% in Q3. In Q3, gross profit rose $1,164M, close to the $1,211M increase in operating income. Itemized R&D and SG&A rose a combined $31M ($975M to $1,006M), so operating expenses were not the main source of leverage.
The reconciliation needs one caveat. Gross profit less R&D and SG&A does not equal reported operating income in either quarter. The gap was about $85M in Q3 2025 and about $7M in Q3 2026. The reported data does not itemize that residual. Its decline accounts for roughly $78M of the $1,211M operating income gain, so it is a real but secondary contributor.
For a reader thinking about durability, the spread matters more than the peak. Observed incremental conversion ran from 64% to 92% within one year. The Q1 figure is the more conservative reference point; the Q3 figure reflects the strongest quarter in the set.
Diluted EPS: the per-share line tracks the operating line
| Quarter | Diluted EPS 2025 | Diluted EPS 2026 | YoY change |
|---|---|---|---|
| Q1 | $1.28 | $1.68 | +31% |
| Q2 | $1.41 | $2.14 | +52% |
| Q3 | $1.48 | $2.62 | +77% |
| Q4 | Not in quarterly data (FY2025 diluted: $5.45) | Not yet reported | n/a |
Diluted EPS went from $1.68 in Q1 to $2.14 in Q2 and $2.62 in Q3, adding about $0.46 and $0.48 sequentially. Q3 pretax income rose 77% ($2,805M against $1,584M) and net income rose 78% ($2,425M against $1,364M), so the per-share gain is in line with the operating line. Q3 2026 tax expense was $380M on $2,805M of pretax income, an effective rate of about 13.5%, versus about 13.9% in Q3 2025. Taxes did not drive the Q3 EPS increase. Diluted share count rose modestly, from 914M to 921M, which is a small drag relative to the earnings growth. Q3 2026 basic EPS was $2.64.
Context from the filings
Three items in the filings bear on how durable the margin path is.
- Capital spending is expected to fall. The 2025 MD&A reports capex of $4.55B and free cash flow of $2.94B, or 16.6% of revenue. It guides 2026 capex to $2B–$3B as the investment cycle ends. If that holds, free cash flow conversion should rise, but this is guidance, not a reported 2026 result.
- Fab ramp costs are still in the mix. The 2025 MD&A notes that Embedded Processing's operating margin fell to 11.3% as LFAB, a newly purchased fab, carries disproportionate manufacturing costs while ramping. The available data has no 2026 segment figures, so it is not possible to say how much of the 2026 margin gain came from that segment or from Analog.
- A large acquisition is pending. The 2025 MD&A describes an all-cash acquisition of Silicon Labs at about $7.5B enterprise value, expected to close in the first half of 2027, funded with cash on hand and new debt. The available data has no 2026 balance sheet, so this piece does not assess leverage or the effect on future margins.
What the numbers do and do not establish
The data supports four statements. Revenue growth accelerated across 2026 quarters. Gross margin widened each quarter. Incremental conversion of revenue into operating income rose to 92% in Q3. Diluted EPS rose 77% in Q3, in step with pretax income.
It does not establish four others. Three quarters is not a trend line. The available data does not explain the 2026 margin gains in management's words. Segment detail for 2026 is missing. And the cash and balance sheet picture for 2026 is not in the available data.
A Buffett-Munger reader would likely focus less on whether one quarter's conversion rate repeats and more on whether the cost base built during the capacity cycle keeps earning its keep as volume grows. The 2025 filings give the cost side of that question: higher manufacturing costs from new capacity, with a fab still ramping. The 2026 filings in this set show the volume side. Whether the two sides keep moving in the same direction is the open question for the next filing. Valuation is outside the scope of this piece.