Graphics processing unit, or GPU, specialist NVIDIA's (NVDA -6.80%) growth plans have increasingly come under scrutiny for a number of reasons. While the company disclosed estimate-beating revenue and profit figures as a part of its recently released results for the first quarter, NVIDIA's revenue guidance of $1.1 billion for the current period failed to rise above analyst expectations.

The company's projected gross margin of 53.7%, an otherwise important indicator of profitability, also fell below Street estimates of 54.7% -- triggering a 3.2% fall in the stock price. With NVIDIA's core GPU business already being threatened by the fast-fading personal computer industry, it's time to delve deeper to find out whether the company has a truly sustainable future.

The game is very much on
The recent slowdown in PC shipments seems to have worked in favor of NVIDIA, which reported a 14% rise in revenue from sales of PC graphics processors during the first quarter. Microsoft's decision to terminate support for its Windows XP operating system in April may have played a big role in this scenario, and the trend is likely to continue for some time, considering the sheer number of systems running the XP OS till now.

With around $20 billion worth of revenue expected to be generated from PC-based gaming this year, NVIDIA's current dominance over almost 70% of that market is likely to ensure steady cash inflow for the company in the near future. But, the company also faces stiff competition from traditional rival Advanced Micro Devices (AMD -6.08%) which has an equally strong reputation in the GPU segment. AMD's recent results for the first quarter have managed to beat Street estimates, thanks to its dominant position as a supplier of graphics cards for game consoles launched by Sony and Microsoft.

At last, good times for Tegra
Overall, however, the global PC market has been steadily shrinking in terms of shipments, and NVIDIA has been trying hard to switch gears and cater to the mobile devices segment, with focus on its Tegra line of business. NVIDIA has spent a lot of cash trying to develop its Tegra architecture, and the effort seems to have paid off as the company's revenue from Tegra-related sales went up by 35% during the first quarter vis-à-vis a 37% decline posted during the previous period.

Within the Tegra business, NVIDIA is pinning its hopes on the Tegra K1 chip, launched earlier this year and dubbed as the next-generation processor capable of providing a console-quality gaming experience to users of mobile devices such as tablets. Investors should be on the lookout for any design wins scored by this product, particularly during the year-end holiday season.

The success of the Tegra K1 is critical for NVIDIA's prospects in the mobile devices segment, where it has been long overshadowed by rival chipmaker Qualcomm. With more than 90% share of the worldwide smartphone chip market, Qualcomm scored a major recent design win when Microsoft decided to launch a new version of its Surface tablet using the former's processor for the first time. That effectively put an end to NVIDIA's dominance as the chip supplier for the Surface tablet, until now.

What else is good about it?
With the company yet to make a mark in the mobile devices space, NVIDIA has recently made efforts at marketing the Tegra K1 processor as being ideally suited for car entertainment and navigational systems. This seems to have paid off in a major way, as the segment was responsible for a 60% rise in Tegra-related sales during the quarter. The company has already tied up with a number of major car manufacturers that include Volkswagen, Audi, BMW, and Tesla, with efforts to persuade them to incorporate the Tegra K1 chip to power future in-car systems.

Another initiative worth mentioning includes the company's GRID technology, which harnesses the power of cloud computing to allow customers to virtually share the capabilities of a single GPU, thereby eliminating the need to install costly on-site hardware. NVIDIA's management is betting big on the new technology, and claims that it's already generating a lot of interest from as many as 600 companies in the data center space -- a possible indicator of its huge potential.

Foolish final thoughts
NVIDIA seems to be going through a critical phase, given the steady decline in the worldwide PC industry and the company's continued failure to secure a foothold in the mobile devices industry. But then, its products find wide acceptance within the robust PC gaming segment, a trend that is likely to continue in the near future.

The increase in sales of its Tegra processors also holds a lot of potential for NVIDIA, especially with regard to companies operating in the car infotainment and enterprise data center space. This stock undoubtedly has a lot going in its favor, but then it's probably best to keep your options on hold for the moment.