Updated from 7:39 a.m. EDT

ATI ( ATYT) vaulted upwards after beating Wall Street expectations on sales and earnings, rising $1.29 or 15% to $9.84.

At Ryan Beck & Co, analyst Brian Foote said the graphics chipmaker likely owes its outperformance to market share gains. While rival Nvidia ( NVDA) saw year-on-year sales decline 31% in its April quarter, he points out, ATI grew sales 28% in its May quarter.

On guidance, too, ATI clearly trumped NVDA with a forecast for 40% year-on-year growth at the low end. Nvidia has outlined growth of 8% at the high end.

The strong May quarter numbers could fuel continued strength in shares of ATI, already up 84% year to date, notes Foote. But he points out competition from Nvidia, with a refreshed product line, is likely to get more intense over the summer and PC sales aren't likely to accelerate in the near term.

That in mind, Foote recommends long-term investors steer clear of both ATI and Nvidia -- or barring that, take advantage of the strength in ATI's stock price to lock in some profits. Ryan Beck hasn't done recent banking for either company.

At Paradigm Capital, analyst Daniel Kim likewise said Nvidia is looking like a stronger contender, closing the performance gap ATI has enjoyed for the past six months. "We believe Nvidia is poised to recapture lost market share on the high-end," he says in a note.

Meanwhile, the PC market remains "moribund" and channel inventory for graphics processors has been building.

Still, in the wake of the latest financial results, Kim raised his sales and revenue estimates and upped his rating on the stock to hold from sell, saying ATI deserves to trade at a premium multiple to reflect its progress.

In its third quarter, ATI swung to a profit on a big year-over-year revenue increase.

The year-ago loss reflected a large amortization writedown. Excluded, profits dipped slightly year over year. Third-quarter revenue totaled $342.1 million, up from $266.2 million last year and well above the $300 million it predicted in March, reflecting improved across-the-board demand for its Radeon chips.

Adjusted to exclude amortization and other items, the company earned $17.5 million, or 7 cents a share, in the latest quarter compared with $19.2 million, or 8 cents a share, last year. The latest quarter's number beat the Thomson First Call estimate by 4 cents a share.

Gross margin slipped slightly year over year because of lower margins for certain mobile products.

ATI expects a sequential increase in fourth-quarter earnings revenue in the range of $335 million to $365 million, improved gross margin and slightly higher operating expense.

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