Texas Instruments (TXN) has high-quality assets, but near- and medium-term demand improvement in the industrial economy could be dampened due to global tariffs, BofA Securities said in a Monday research report.

The company also has limited exposure to the artificial intelligence capital expenditure cycle and has a "rich valuation" despite relatively lower free cash flow margins. It also faces gross margin pressures if demand does not pick up, according to the note.

BofA said it lowered its fiscal 2025, 2026, and 2027 EPS estimates to $5.54, $6.05, and $6.91, respectively.

Texas Instruments could surprise to the upside if the US government's reshoring efforts compel more products to be made in the US, given the company's large US manufacturing base, BofA said. The company could also benefit from investor rotation away from AI stocks, a rebound in industrial and automotive activity, as well as a lower tax rate due to new US legislation, analysts wrote.

The brokerage said it downgraded the stock to underperform from neutral and lowered its price target to $190 per share from $208.

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