Google and Texas Instruments Q1 Recap: Early Recovery or More Volatility Ahead?
This article breaks down TI and Google's Q1 results covering industrial demand trends, AI-driven growth, and the risks from rising capex and macro uncertainty.
So, have China and America been speaking? Trump and his administration have said that they have been in conversation, but China claim that this is false and won’t reduce tariffs until America does so first. Sounds like an argument you’d have as a kid in the playground over something stupid. But in this case, it’s not something stupid and its impact spans widely. Despite these back-and-forth headlines, equity markets closed in the green after a slow start to the week. On the macro side, markets have been swinging between optimism and caution. Earlier this week, comments from Cleveland Fed President Beth Hammack opened the door for a potential rate cut in June if economic data weakens, which helped fuel some of the rally we saw. Treasury yields dropped sharply after her remarks, and the CME FedWatch tool now shows rising odds of a summer cut. Now, the exciting stuff. Several tech names reported earnings last week and although I can’t cover them all, I’ll be diving into the two which caught my eye the most.
Texas Instruments
Texas Instruments, a name that you may not have heard of but I guess it can be classed as where semiconductors came to fame. It’s one of the oldest names in the business. Back in the 1950s, a few engineers from Bell Labs, the same Bell Labs that invented the transistor, moved over to TI to help bring semiconductors into the commercial world. TI didn’t invent the chip, but it played a huge role in scaling it, especially with the first commercial silicon transistor and the first integrated circuit. Even Morris Chang, the founder of TSMC (check out my article covering their latest earnings if you haven’t already) and now considered one of the most important figures in semis, started his career at TI. He spent over two decades there and rose through the ranks before eventually moving to Taiwan to start TSMC. They don’t focus on the latest chips that power AI though, that is probably why they aren’t in the headlines. TI's business is broken into the following segments: analog, embedded processing, and what they call "other". Analog is the biggest, making up over 70% of revenue, and it's all about chips that manage and move signals, like voltage regulators, data converters, power management systems, and sensors. Embedded processing is smaller but important, providing microcontrollers and processors that sit inside everyday products like cars, industrial machines, and appliances. The "other" segment is mainly made up of calculators and royalties, but it's tiny compared to the core business. TI focuses on building durable, reliable chips that serve large, stable markets, rather than chasing the newest AI applications.
For context, TI's end markets have been suffering for a while, and if we take out AI-related chip companies, most of the semiconductor space has been suffering over the past year. Inventory levels have stayed high, demand in areas like industrial and automotive cooled off and customers have pulled back on new orders. TI's numbers this week weren’t amazing, but the rate of decline is starting to slow and management hinted that things could begin to pick up in the second half of the year. So let’s get into it.
Q1 earnings beat expectations across the board. Revenue came in at $4.07bn, up 11% YoY, ahead of analyst forecasts of $3.91bn. EPS was $1.28, comfortably beating the $1.07 consensus estimate, helped by a better product mix and slightly higher revenue than expected. Net income for the quarter was $1.18bn, up from $1.10bn a year ago, and gross margin came in at 57%, slightly down sequentially but pretty much in line with what management had expected. Analog revenue grew 13% YoY to $3.21bn, while embedded processing stayed roughly flat at $647 million, down just 1% YoY. The "other" segment, which includes calculators and royalties, was up 23% YoY to $212 million, though it remains a small part of the overall mix.
The most important point in the results was that the industrial market, which has been dragging down numbers for over a year, finally showed sequential growth. Industrial revenue grew by upper single digits compared to Q4, bouncing after several straight quarters of decline. This is a big deal because industrial is TI’s largest end market and has a direct impact on factory utilisation. When industrial demand dries up, fabs are running below optimal levels, and fixed manufacturing costs get spread over fewer units, which squeezes gross margins. It also puts a ceiling on operating leverage, meaning that even when revenue grows a little, it doesn’t translate into much profit growth. If industrial demand is really starting to turn, TI shouldn’t just see more stable revenues, but also better margins as they push more volume through their factories. Higher utilisation means better absorption of fixed costs and more incremental profit on every new dollar of revenue, something that is critical now with capex still running high. In short, a recovery in industrial would help pull TI’s whole model back toward stronger free cash flow growth and better returns on the massive investments they have made over the last few years.
Automotive also grew low single digits, and communications and enterprise systems were up mid-single digits. Personal electronics, as expected, declined mid-teens sequentially following normal seasonal patterns. Management said that customer inventories across all end markets are now at low levels, which should help support revenue stabilisation going forward.
Capex stayed elevated at $1.1bn this quarter which is part of TI’s long-term plan to expand internal manufacturing capacity. Over the past few years, they have been investing heavily in new 300mm wafer fabs like RFAB2 in Texas and the upgraded LFAB in Utah, aiming to shift more production in-house and reduce reliance on external foundries. According to management, they are now about 70% of the way through this elevated investment cycle, suggesting that the heaviest spending should start to taper off in the next couple of years. Free cash flow for the quarter was essentially breakeven because of the high capex, but on a trailing 12-month basis it stood at $1.7bn, showing that TI's underlying cash generation remains healthy even during a heavy investment phase. Despite these massive investments, TI still returned $6.4bn to shareholders over the past 12 months through dividends and buybacks, reinforcing their commitment to balancing growth investments with strong capital returns. I think the fact that they have stayed committed to returning capital despite being in a rough patch tells me that TI really cares about their investors. However, the real test going forward will be whether the new capacity translates into better operating leverage and higher free cash flow per share once demand across industrial and automotive markets fully recovers.
Price Action
Investors reacted positively to the earnings, TXN 0.00%↑ closed up ~11% for the week, regaining some of the losses from the November 2024 peak, which currently sit at ~-26%. Before the earnings release, price interacted with the key $140 level and sellers weren’t able to push through the level. In the near term, given there aren’t any crazy headlines (which is quite unlikely in this current environment), my bull case would be for price to come back to $185 as that’s the next level of interaction in place. I think that when the auto market makes a recovery, which it will, even if it takes another year or two, TXN will be one of the main beneficiaries. Timing an entry for the long term is tricky, as if tariffs are worse than expected and the end markets are squeezed further then I don’t see much upside for the TI in the near future.
Outlook
For Q2, TI guided revenue between $4.17bn and $4.53bn and EPS between $1.21 and $1.47, both ranges comfortably ahead of analyst expectations. Management noted that industrial in particular is seeing a real recovery, with customers starting to rebuild stock after running lean for most of last year. Automotive demand also continues to trend steadily higher, although at a slower pace. However, the tone around the second half of 2025 stayed cautious, with management acknowledging that tariffs, geopolitical risks, and broader macro uncertainty could still cause volatility. During the Q&A, an analyst from UBS asked whether part of the recent demand strength could simply be customers pulling forward orders to get ahead of tariffs. Management responded that while there may be some of that behaviour, the broader signals from customers, especially in industrial, suggest a genuine recovery rather than panic buying. Overall, TI struck a balanced tone, sounding more optimistic about the next few months but making it clear they are preparing for a wide range of outcomes into the back end of the year.
It’ll be interesting to see what the below companies, that play in the same end markets as TI, have to say about a recovery when they report earnings:
Analog Devices (ADI)
NXP Semiconductors (NXPI)
Infineon Technologies (IFX)
Microchip Technology (MCHP)
ON Semiconductor (ON)
Now, onto one of my favourite companies.
Alphabet (Google)
If you missed my previous earnings report for Alphabet, I’d recommend you have a quick read as I will be picking up where I left off. For simplicity’s sake, I will be saying Google rather than Alphabet from this point onwards. Google are at the forefront of AI and their positioning stands out compared to other hyperscalers. Unlike Microsoft and Amazon, who rely heavily on partnerships or external models, Google owns the full AI stack from infrastructure to models to applications. Their approach combines deep control over the hardware layer, like custom Tensor Processing Units (TPUs), with their in-house Gemini models and AI features embedded directly into Search, YouTube, and Cloud. Since I last wrote about Google, they have gone on to acquire Wiz, a cybersecurity company that strengthens their cloud security capabilities at a time when security is becoming an even bigger driver of enterprise cloud spending. Meanwhile, their court case with the U.S. Department of Justice over alleged antitrust violations in digital advertising has officially begun. The government claims Google unlawfully maintained monopolies in search and search advertising, while Google argues that innovation and competition are thriving. It is still early days but the trial could have major implications depending on how it plays out, with Google potentially being forced to break up their advertising business.
Before getting into the numbers, I want to touch on Gemini as Google have been releasing several updates over the past few weeks. Gemini 2.5 and 2.5 Flash introduce notable changes in model architecture, particularly around enhanced reasoning capabilities. Compared to earlier versions that primarily focused on pattern recognition and text generation, these new iterations incorporate more structured "thinking" processes. The models can analyse a prompt, break down complex tasks into sequential steps, and generate more thought out responses. This framework is intended to improve performance on tasks such as coding, advanced mathematics, and data analysis. The underlying technology supporting this shift is a hybrid reasoning architecture. Gemini models can adapt their computational strategies depending on the complexity of the input. For simpler queries, the models can produce faster, lower-cost outputs, while for more complex tasks, they can engage deeper reasoning mechanisms. Developers are also given flexibility through a "thinking budget" that allows control over how much computational resource is dedicated to reasoning, balancing response quality, latency, and cost depending on the application. Very impressive. Gemini 2.5 also expands its multimodal capabilities, with the ability to process and understand information across text, images, audio, and video simultaneously. The model features a longer context window than previous versions, currently capable of handling up to one million tokens, with plans for future expansion. This enables it to process larger documents, extended codebases, and multifaceted queries with greater coherence over long inputs. Taken together, Gemini 2.5 and 2.5 Flash represent an incremental shift toward models that aim to combine reasoning, flexibility, and multimodal understanding.
Q1 earnings, in my opinion, came in strong and I liked what I saw. Revenue grew 12% YoY to $90.2bn, ahead of expectations, with strength across all major segments. Gross margin expanded slightly compared to last year, supported by a mix of strong advertising recovery, better monetisation in subscriptions, and improving unit economics in Cloud. EPS jumped 49% to $2.81, reflecting not just revenue growth but a noticeable step-up in operating leverage as fixed costs were better absorbed across the business. Total operating income rose 20% to $30.6bn, and operating margin expanded by two percentage points to 34%.
Cloud was a clear highlight this quarter. Revenue grew 28% YoY to $12.3bn, demonstrating that Google's sustained investment into AI infrastructure is translating into tangible top-line acceleration. Growth was broad-based across core GCP products, AI infrastructure, and Workspace solutions, suggesting that demand is not being driven solely by one-off AI enthusiasm but reflects a deeper shift in enterprise IT spending patterns. Critically, profitability improved materially. Operating income more than doubled to $2.2bn, with operating margins expanding from 9.4% to 17.8%, indicating that Cloud is now benefiting from operating leverage at scale. The margin improvement is significant because it suggests that the business is transitioning from a phase of pure investment into a phase where fixed infrastructure costs are increasingly being absorbed by higher utilisation rates and more value-added services. It also supports the argument that Google's AI capital cycle is not simply dilutive but is capable of driving structurally higher profitability over time. But, and yes, sadly there is a but. Not everything was perfect. Depreciation expenses climbed to $4.5bn this quarter. Depreciation is an accounting method used to systematically allocate the cost of long-lived assets, such as data centres and servers, over their estimated useful lives. Although the cash outlay occurs when the assets are purchased or constructed, the expense is recognised gradually over time through depreciation. While depreciation reduces reported net income and earnings per share, it doesn’t impact operating cash flow because it is a non-cash expense. As Google's capex has accelerated over the last few years, the associated depreciation burden is now rising. When this starts flowing through the income statement, higher depreciation will weigh on EPS growth. This pressure was part of the reason why, despite delivering 46% net income growth, the stock reaction was somewhat muted. The market is increasingly sensitive to how much of this capex converts into durable, high-margin revenue rather than just increasing fixed costs.
Price Action
GOOG 0.00%↑ has been hit hard because of all the headlines. Their business is less exposed to tariffs directly but more so the economic consequences as ad spending shrinks massively during economic downturns. If the optimism from this previous week carries into the next couple of weeks, then I can certainly see price trade around the ~$180 mark. This is only relevant if you want to trade it as I’m sure over the next few months Trump will say something to put markets heavily risk off again. I like technical analysis because it helps paint a picture and I’ve been using it for five years but the fundamentals almost always outweigh the charts in terms of direction so keep this in mind if you’re a fellow chartist.
Outlook
Management struck a confident tone with a strong focus on scaling AI across Google's core products while maintaining financial discipline. CEO Sundar Pichai emphasised that the integration of Gemini models into Search, Cloud, and Workspace is still early and that the company is well-positioned to capture enterprise AI demand. CFO Anat Ashkenazi reiterated plans to invest approximately $75bn in capex this year, acknowledging that while higher depreciation will pressure earnings, they remain focused on driving operating leverage through cost controls and product mix improvements. The overall message was one of balancing aggressive investment in AI infrastructure with a clear expectation that this cycle will translate into durable revenue and margin expansion over time. One part I found particularly interesting was the emphasis on AI agents. Sundar highlighted Google's investment in developing enterprise-grade AI agents through tools like the Agent Development Kit and Agent Designer. Rather than treating AI as just a model deployment story, Google is positioning itself to lead the shift toward intelligent task automation, embedding AI-driven workflows across major enterprise systems. Early traction with customers like KPMG suggests that AI agents could become a critical differentiator for Google Cloud as competition in infrastructure alone intensifies.
Final Thoughts
We are yet to enter the belly of earnings season but so far things haven’t been as bad as feared, perhaps because the tariff effects won’t start being reflected until Q2/3 reports. I’ll be closely monitoring how other semi firms are seeing demand in the end markets, which have been suffering, as I want to be in early if things start to turn. I will write an article on this topic once earnings season is over so stay tuned for that! On the hyperscaler front, it’s going to be super interesting to see how the others fared and I’m looking forward to Meta, Microsoft and Amazon’s earnings all coming out next week. Make sure you’re subscribed to receive my next article covering their latest earnings.
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Disclaimer: This article is for informational purposes only and should not be considered financial or investment advice. The views expressed are my own and based on publicly available information, market trends, and personal analysis. I own shares of Google which may change at any time. Readers should conduct their own research and consult a financial professional before making any investment decisions.