Nvidia shares surged 12 percent on Wednesday, extending a recent rally ignited by a $1.5 billion legal settlement with Intel and optimism about its ARM-based chip business.

Nvidia's stock was $22.83 in afternoon trading, bringing its gain in January to 48 percent.

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

Nvidia said last week that it was developing an ARM-based PC central processor under the code name Project Denver that would be aimed at everything from workstations to supercomputers, directly challenging Intel.

Possibly helping Nvidia in the short term, rival Advanced Micro Devices' chief executive, Dirk Meyer, left the company this week due to differences over strategy.

People are digesting the Intel settlement, digesting CES ... Their primary competitor (AMD) just got a lot weaker, said Alex Gauna, an analyst at JMP Securities.

Much of the reason for Meyer's departure had to do with some discontent on the board about AMD's decision not to pursue making chips for the mobile market other than netbooks, a company source said on Tuesday.

AMD's lack of participation in the mobile market was underscored at last week's Consumer Electronics Show (CES), in Las Vegas, where Nvidia's Tegra 2 mobile chip appeared in several new tablets and smartphones.

(Reporting by Noel Randewich)

California Intel