Nvidia has given Wall Street one of its best comeback stories in years and has been rewarded with a hefty share rally, but some investors now question how long its new lead in mobile chips will last.

Snubbed for years as a one-trick pony in video game graphics, Nvidia -- whose chief executive, Jen-Hsun Huang, has a penchant for fast cars -- now seems to be having the ride of its life.

The company is applying its technology to powering mobile devices, and the recent appearance of its chips in new smartphones and tablets made by Motorola, LG and Dell have won the company admirers on Wall Street.

Its Tegra 2 chips made a splash in January at the Consumer Electronics Show and ignited a share rally.

But a 47 percent surge since the start of 2011 has raised eyebrows as some investors ask whether the graphics specialist can defend its early advantage in new tablets from major rivals like Qualcomm and Texas Instruments.

While they are riding the early stages of the wave and should be rewarded for having the foresight to help define that market, it's not going to be a long window because they have some very serious competition, said Cody Acree, an analyst at Williams Financial Group.

Nvidia's leap into the mobile market with its well-reviewed, cutting-edge Tegra 2 processors comes as Intel and Advanced Micro Devices squeeze its traditional business of designing graphics chips, or GPUs, for personal computers.

With Intel largely absent so far in mobile, Texas Instruments, Qualcomm and Nvidia are at the center of a battle to supply the brains behind the newest crop of devices. Marvell, Broadcom and Samsung are also competing.

With years more experience designing processors for mobile phones, Texas Instruments and Qualcomm may have advantages over Nvidia in areas like energy efficiency -- key for smartphones and tablets -- and are talking about cutting-edge tweaks to their chips like next-generation modems and gesture sensing.

Eager to maintain its edge, Nvidia on Tuesday showed reporters at the Mobile World Congress in Barcelona a tablet using its yet-to-be-released quad-core processor. It said the chips, codenamed Kal-El and currently being sampled by customers, would have five times the processing power of Tegra 2 and appear in tablets around August and in smartphones by Christmas season.

For a table comparing Nvidia's key valuations with rivals, please click http://link.reuters.com/der97r

RALLYING

Last year, fears that Nvidia was trapped in a shrinking graphics market hammered its shares by 40 percent until the fourth quarter, when the company's upcoming mobile processors began to attract more attention and its stock began to recover.

Nvidia and most of its competitors design their chips for smartphones and tablets using architecture licensed from Britain's ARM Holdings, an energy-efficient technology that is shaping up to be the mobile industry's standard.

The combination of ARM technology and its expertise in graphics has enabled Nvidia to get itself back on the scoreboard.

ARM has democratized the CPU, Huang, once a competitive table-tennis player, told a CES audience in January.

Unlike central processors, or CPUs, which make huge calculations one after another, GPUs excel at carrying out several small calculations at once. That makes them ideal for processing the high-definition video and multimedia content consumers increasingly want.

But in a sign of the formidable competition that Nvidia faces, Hewlett-Packard chose Qualcomm's dual-core Snapdragon for its TouchPad tablet to compete against Apple's iPad.

Qualcomm on Monday outlined its plan for its own much faster quad-core processor for future mobile devices.

Texas Instruments last week announced its newest mobile processor, the OMAP 5, which promises a fivefold increase in graphics processing and will be available for tablet and phone makers to test in the second half of 2011.

Vicious competition, short product cycles and supply swings in Nvidia's core PC graphics business have made for erratic quarterly earnings over the years, making its stock a tough sell to conservative investors. Expansion into the mobile market may help Nvidia reduce its earnings volatility.

We'd have to see a very strong case to be made for sustained profitability with the stock at this price, said Pat Becker Jr., a principal at Becker Capital Management who follows technology stock but does not own Nvidia shares.

The recent rally in Nvidia on the perception it is a strong mobile play has pushed its valuation far above those of its peers, raising concerns it may now be expensive given that most of its sales still come from PC graphics chips.

It trades at 23 times forward earnings, far surpassing TI's 13.5 or Marvell's 11.4, according to Thomson Reuters Starmine.

The multiple on the stock right now is coming from a perception that they're sweeping smartphone and tablets, but the reality is this is still a PC-driven story, said JMP Securities analyst Alex Gauna.

Nvidia reports fourth-quarter results on Wednesday and is expected to show a healthy profit increase over the previous quarter with higher sales of PC graphics chips during the holiday season and only minor early sales of Tegra 2 chips.

In 2011, Tegra sales could amount to $460 million of Nvidia's estimated $3.6 billion in revenue, with the rest coming mostly from PC graphics chip sales, according to Gleacher & Company analyst Doug Freedman.

The mobile space is growing like crazy, said Gamble Jones Investment Counsel portfolio manager Hampton Adams, who holds shares of Nvidia but says uncertain market estimates discourage buying more. It's more art than science, but unless we can make a reasonable approximation of what it's worth, we don't want to take a stab at it.

(Additional reporting by Tarmo Virki in Barcelona; Editing by Edwin Chan and Steve Orlofsky, Gary Hill)