Nvidia said market demand for video chips has bottomed out and expects to ride strong sales when Microsoft releases its next-generation operating system, Windows 7.

Nvidia, saying Windows 7 will support the nascent use of graphics processors for the main tasks of computing, hopes that PC makers will realize that users increasingly want and need graphics-intensive, multimedia applications.

More broadly, Nvidia Chief Executive Jen-Hsun Huang said industry inventory levels were near historical lows after cutbacks in production over past quarters.

It definitely seems like the market has bottomed out and demand seems to be growing again -- obviously from a lower base, Huang said at the Reuters Global Technology Summit in New York. He saw spot shortages in the channel for some of our products.

Huang said notebooks -- which are decreasing in size while gobbling up market share -- were an ideal fit for Nvidia's chips because consumers used the mini-computers primarily for graphics-heavy applications.

(For summit blog: http://blogs.reuters.com/summits/)

(Reporting by Edwin Chan)