Image source: Texas Instruments.

NXP Semiconductors (NASDAQ:NXPI) is bulking up to take on Texas Instruments (NASDAQ:TXN) head-to-head in many key markets.

This clash of semiconductor titans will keep the news wires buzzing for years to come. But should investors hang their hopes on the incumbent leader -- or on the upstart challenger?

Both of these stocks have beaten the market over the last three years. NXP provided both the loftiest highs and the steepest drops in this period.

The roller coaster gave risk-tolerant investors more than twice the gains of holding TI shares:

TXN Chart

TXN data by YCharts.

NXP's big gains didn't come out of thin air. They were actually based on strong business growth. Thanks to rapid adoption of NXP's near-field communication (NFC) chips for mobile payment services, on top of solid sales to the automotive sector, NXP has been on an absolute tear. Meanwhile, TI has settled for a different level of profit growth -- respectable, but much slower:

TXN Revenue (TTM) Chart

TXN Revenue (TTM) data by YCharts.

So far, NXP might look like the obvious choice. Expanding sales lead to booming bottom-line profits, and the stock follows suit. And when you add in the $17.6 billion Freescale buyout, the good times must be sure to roll on. Right?

Not so fast...
Yes, the Freescale acquisition adds plenty of muscular bulk to NXP's already athletic frame. Total sales are expected to top $10 billion in fiscal year 2016, up from $6.1 billion in 2015.

But the merger won't be all wine and roses. There is some overlap between NXP's and Freescale's operations, and NXP also had to offload some operations to a Chinese investor in order to meet regulatory antitrust requirements. So the revenue forecast for the upcoming first quarter of 2016 is $2.2 billion. It's a 50% increase over NXP's stand-alone sales in the year-ago quarter, but 17% below the total sales of Freescale and NXP in that quarter.

Investors have caught on to this speed bump. The merger was supposed to create an instant giant with a $40 billion enterprise value -- but that metric never peaked above $36.5 billion and now stands at just $34 billion.

Image source: NXP.

So now we have a somewhat strange situation on our hands. Robust all-weather business Texas Instruments is trading for 19 times trailing earnings and 18 times forward estimates, right in the range it has inhabited for the last four years. Meanwhile, proven high-growth operator NXP with its Freescale-branded rocket booster has misfired lately, and the stock looks like a relative bargain. NXP shares can be had for 13 times trailing earnings or 16 times forward profits.

There is a lot of risk baked into NXP's current prices. Your average investor is expecting the modest first-quarter guidance to be the first of many disappointments, so the stock has been bumped into the bargain bin.

Who won? It depends...
If you agree with that assessment, Texas Instruments would certainly be a safer bet. There is nothing wrong with a rock-solid titan, especially when it comes with a generous 2.8% dividend yield.

But if you believe, as I do, that NXP investors are overreacting to a necessary slow period as the company absorbs Freescale's operations, NXP shares start to look downright irresistible at these deep-discount levels.

Massive mergers are never easy, but this one holds more promise than most. If you're the kind of reader that skips to the final chapter just to get the takeaway, I'll just say that NXP won this showdown.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.