Shares of Texas Instruments Inc. (NASDAQ: TXN) surged to all-time highs Wednesday after the chipmaker reported better than expected earnings, a sign that American semiconductor companies are weathering the U.S.-China trade storm.

 

Q2 Earnings Summary

  • Earnings: $1.36 per share
  • Revenue: $3.67 billion
In addition to reporting better than expected results, Texas Instruments raised its third-quarter guidance.

The Dallas-based company reported second-quarter net income of $1.31 billion, or $1.36 a share, on revenues of $3.67 billion. Both figures represented notable year-over-year declines, but were above the median forecast of $1.22 per share on $3.6 billion in revenue.

In addition to reporting better than expected results, Texas Instruments raised its third-quarter guidance. The company now expects to earn between $1.31 a share to $1.53 a share on revenue of $3.65 billion to $3.95 billion. On average, analysts had predicted $1.37 in per-share profit on sales of $3.84 billion, according to Bloomberg.

Notably, Texas Instruments announced that shipments to Huawei resumed after the U.S. government issued a temporary ban on doing business with the Chinese telecommunications giant. Huawei accounted for 3% to 4% of Texas Instruments overall revenue, the company said.

“It’s a mix of comms equipment and some handset in there and some other products…if you look from a regional standpoint, I’d say there’s nothing unusual going on,” David Pahl, the company’s head of investor relations, said on the Tuesday earnings call.

The nearly year-long trade dispute between the United States and China has yet to be resolved, but both sides have vowed to continue negotiations. As The Wall Street Journal reported Tuesday, the Trump administration will send a U.S. delegation to Shanghai next week to resume talks, marking the first face-to-face meetings since May.

 

TXN Stock Surges

Shares of Texas Instruments surged to record highs on Wednesday, as investors rallied behind the quarterly earnings report. TXN traded as high as $129.80, gaining 8.1%. It was last seen trading just north of $129.

Texas Instruments Notches New Highs on Wednesday in Post-earnings Euphoria

Texas Instruments Share Price YTD - Jul 24 2019

Source: Yahoo Finance

The stock is up more than 36% year-to-date, outperforming the broader semiconductor industry and the S&P 500 by a wide margin.

TXN’s strong performance was part of the reason why the Nasdaq Composite Index returned to record territory on Wednesday. The technology-focused index traded as high as 8,284.55.

So far, second-quarter earnings are turning out better than expected. As of July 19, 16% of S&P 500 companies had reported actual results. Of them, 79% reported better than expected earnings and 62% posted positive revenue surprises, according to FactSet. A continuation of this trend will likely feed into the stock rally.

 

Conclusion

U.S. semiconductor companies aren’t out the of woods yet, but with China trade talks resuming, there’s a great deal of optimism that a new deal can get done. In the meantime, Texas Instruments is expected to report year-over-year declines on both its top and bottom lines (as we just saw in Q2). As of now, the company is holding up better than expected.

Disclaimer: Author holds no investment position in Texas Instruments at the time of writing.