Nvidia shares surged 14 percent on Wednesday, extending a recent rally ignited by optimism about its ARM-based mobile chip business and a $1.5 billion legal settlement with Intel Corp.

Nvidia's stock hit $23.10 in afternoon trading, bringing its gain in January to about 50 percent as investors bet on the Santa Clara, Calif company's new Tegra 2 mobile chips.

Wedbush analyst Patrick Wang has been fielding calls from clients and helping them estimate how large an impact Nvidia's mobile chips could make on the mobile market, where competition

from Qualcomm Inc and eventually Intel is expected to increase.

The stock is trading purely on momentum at this point, Wang said.

He estimated Nvidia, which faced delays in launching its Tegra chips, could gain a 30 percent share of the market for tablets and smartphones two years from now.

Micron technology Inc shares jumped 7.11 percent to $9.33, likely helped by Nvidia's rally, said Alex Gauna, an analyst at JMP Securities. Micron makes NAND flash memory used in smartphone and tablets.

Nvidia made its name designing high-end graphics chips for PCs. But facing increased competition in that market from Advanced Micro Devices Inc and Intel, company co-founder and chief executive Jen-Hsun Huang has pushed into mobile, combining central processors based on ARM Holdings Plc architecture with Nvidia's own graphics technology.

Intel said earlier this week it would pay Nvidia $1.5 billion to license its patents, settling a legal dispute and validating Nvidia's focus on graphics technology.

And at last week's Consumer Electronics Show, or CES, Nvidia said it was developing an ARM-based PC central processor under the code name Project Denver, directly challenging Intel in its own traditional market.

Adding to upheaval in the semiconductor industry, Advanced Micro Devices Inc's chief executive, Dirk Meyer, left the company this week due in part to the company's lack of a mobile strategy.

People are digesting the Intel settlement, digesting CES ... Their primary competitor (AMD) just got a lot weaker, Gauna said.

(Reporting by Noel Randewich; editing by Andre Grenon)