The semiconductor industry is down in the dumps these days. Former blue chips like Intel (NASDAQ:INTC) have proven their own mortality over the past couple of years. Their share prices have gone either nowhere or down since the heyday of late 2005, and investors have started to look elsewhere when putting new money in the market.

Not so fast.

Sure, a few semi businesses have stumbled, but others have stepped up and shown us that they're made of The Right Stuff (tm). However, Mr. Market still treats them like redheaded stepchildren, and the buy-in opportunity right now is extreme.

Fast and furious
If I were buying chip stocks today, I'd start with a good, hard look at Sigma Designs (NASDAQ:SIGM). The time is right, as the stock has become about 40% cheaper than last year -- and the market window for advanced digital media chips is just opening. Sigma is popular with your fellow investors, as shown by a five-star CAPS rating, and also with our top Foolish analysts -- it has been recommended by both David Gardner in the Motley Fool Rule Breakers newsletter and more recently by the Hidden Gems Pay Dirt service.

Texas Instruments (NYSE:TXN) is another tempting nugget. The Texan giant competes in many of the same red-hot markets where Sigma makes its bread, but it's also an established market leader in analog chips and calculators, just to name a few of its strengths. TI has transformed its production model from cash-intensive and sluggish in-house factories to a whole lot of asset-light outsourcing with partners like Taiwan Semiconductor Manufacturing (NYSE:TSM) and United Microelectronics (NYSE:UMC). This has boosted cash flows and gross margins tremendously over the last three years, positioning the company to respond very quickly to changing market conditions. Yet the stock has fallen by around 16% over the last year and barely budged since the summer of 2006. TI remains a solid buy at these prices.

As TI is a trendsetter in the industry, copycats like Advanced Micro Devices (NYSE:AMD) and Motorola (NYSE:MOT) have followed in its asset-light footsteps, making the chip foundries themselves very tempting, too. Follow the money, and you'll find opportunities all over this beaten-down market sector.