Texas Instruments (NYSE:TXN) is famous for its calculators, but when it comes to sales growth, the company is spitting out negative numbers. Fortunately for investors interested in chip stocks, Nvidia (NASDAQ:NVDA) is growing like gangbusters. So, where should you put your chips?

Texas Instruments is expected to report a plunge in earnings later Monday. Analysts expect 57 cents per share in EPS, down 20% from the year before. Analysts also expect TXN’s revenues to drop 11% in the quarter to $3.33 billion.

A problem with TXN’s business strategy appears to be what’s behind the drop. Unlike more successful companies, Texas Instruments CEO Rich Templeton resorted to blaming external factors for the sales decline. When TXN reported its second-quarter results, Templeton cited “mixed macroeconomic and market signals.”

And Templeton claimed demand was weak. As he said, “We note that production at some computing and consumer manufacturers appears lukewarm even though we’re heading into the back-to-school and holiday seasons.”

Furthermore, he argued that TXN suffered from soft demand in PCs and digital televisions. The good news was that Texas Instruments enjoyed sales gains in demand for its power management chips.

Of course, there is no law that requires Texas Instruments to continue to depend so heavily on slower-growing markets. TXN could, instead, set its sights on faster-growing markets as Nvidia does. When it reported its second-quarter results, Nvidia’s stock spiked 19% after executives said its revenues would rise between 4% and 6% faster in the third quarter compared to the second one.

Nvidia’s second-quarter guidance translated into higher-than-expected third-quarter sales expectations. Specifically, Nvidia guided analysis several hundred million dollars higher to a range between $1.06 billion and $1.08 billion — above analysts’ average forecast of $1.05 billion.

Not only that, but Nvidia’s earnings more than tripled in the second quarter. It reported non-GAAP earnings of $193.5 million — 304% above the $48 million NVDA earned the year before.

Does this mean you should shun TI and but Nvidia? You might consider both. Here’s why:

• Texas Instruments: Strong growth and margins; fairly priced stock. Despite the short-term drops, TXN’s revenues were up a solid 34% to $14.12 billion in the past 12 months, while net income was up 119% to $3.1 billion during the same period — yielding a 22.2% net profit margin. Its PEG of 1.0 (where a PEG of 1.0 is considered fairly priced) is perfectly reasonable on a P/E of 11.76 and expected earnings growth of 11.7% to $2.51 in 2012.
• Nvidia: Decent growth, fair margins; inexpensive stock. Revenues for Nvidia were up 6.5% to $3.7 billion in the past 12 months, while net income shot up 472% to $543 million — yielding a net profit margin of 14.65%. Its PEG of 0.91 is cheap on a P/E of 15.91 and expected earnings growth of 17.5% to $1.18 in 2012.

TI’s recent performance suggests that it might not be able to resume positive earnings growth in 2012. But if the forecast is right, its stock is fairly priced. Nvidia, by contrast, is growing much faster, but analysts seem to think its growth will slow down in fiscal 2013. But even if it does, the stock is cheap at its current P/E.

As of this writing, Peter Cohan did not own a position in any of the aforementioned stocks.