The past two quarters have been a real Dr. Jekyll and Mr. Hyde tale for graphics chip maker NVIDIA (NASDAQ:NVDA). The last quarter was a horror story for investors, with a 79% year-over-year decline in profits leading to a 24% free fall in the stock price. This quarter, though, showed a remarkable transformation -- earnings of $0.15 per share came close to four times last year's results and handily beat expectations of nine cents a share.

This quarter's highlight was that NVIDIA recaptured the high-end desktop graphics processing units (GPUs) segment. According to Mercury Research's Third Quarter PC Graphics Report, its market share grew from 26% to 64%. This had immediate impact, as this performance segment's gross profits are many times higher. The increase in high-end market share will also provide a long trickle-down effect as the company's latest GeForce 6 architecture is sold to mainstream and value segments. Volume production of GPUs targeting these markets has already begun.

The encouraging news is that NVIDIA's ramp-up of GeForce 6-based products is still in its early stages. Unit shipments of GeForce 6 GPUs increased more than 500% quarter over quarter and are projected to increase several times more in the fourth quarter.

It is crucial that NVIDIA leverages its re-emergence in the high end. The same report showed that in the stand-alone desktop segment, rival ATI Technologies (NASDAQ:ATYT) grew its share by 17%, and NVIDIA's share fell by 16%. This is by far the largest market and thus the most important battleground.

NVIDIA has a card up its sleeve that may prove instrumental -- GeForce 6 GPUs support the Pixel Shader 3.0 technology, a capability that ATI will not have until the first half of 2005. The jury is still out on the significance of this -- not many current games support the technology. Should it become more common, NVIDIA would have a strong trump card for a long time.

The stark contrast between second- and third-quarter results will have some asking, "Will the real NVIDIA please stand up?" There are many investors still smarting from the previous quarter's debacle (a 24% drop in price takes out plenty of stop-loss orders). NVIDIA needs to prove that the last quarter was merely an aberration. With this quarter's recovery in the performance segment, the company is well on the road to redemption. Now NVIDIA needs to bring that success to the mainstream market.

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Fool contributor Tim Goh does not own any stake in the companies mentioned.