Questions are arising about when artificial intelligence will deliver its promised returns, meaning tech-concentrated U.S. equity indices sitting near record highs are vulnerable to a correction.<\/p>\n
Nvidia\u2019s quarterly results this week could therefore potentially be explosive \u2013 not just for the company\u2019s shares or the tech sector, but for all of Wall Street.<\/p>\n
The U.S. chipmaker and global AI leader is the world\u2019s most valuable company, with a market cap of US$4.4 trillion. That\u2019s double the entire value of Germany\u2019s benchmark DAX and represents eight per cent of the S&P 500, the largest share for any single stock in the index\u2019s history.<\/p>\n
Nvidia is expected to report a 53 per cent increase in revenue to $46.02 billion on Wednesday, according to the mean estimate from 40 analysts, based on LSEG data. That would be higher than the company\u2019s own guidance three months ago.<\/p>\n
Given Nvidia\u2019s unprecedented weight in the U.S. market, its earnings releases have become an event \u2013 almost akin to U.S. GDP or inflation statistics. But Wednesday\u2019s numbers will be scrutinized particularly closely given the questions being raised about whether we\u2019re seeing an AI bubble.<\/p>\n
Opinion: The AI revolution could be a dud<\/a><\/p>\n Doubt appears to be creeping in among investors about when and by how much \u2013 or even if \u2013 the eye-watering investment in AI projects and infrastructure will begin to pay off. And it\u2019s not just the bearish, contrarian, \u2019Magnificent Seven\u2019 short sellers peddling this narrative either.<\/p>\n \u201cAre we in a phase where investors as a whole are overexcited about AI? My opinion is yes,\u201d said none other than ChatGPT founder Sam Altman earlier this month, according to The Verge.<\/p>\n A recent Massachusetts Institute of Technology study found that 95 per cent of companies are getting zero return on the billions of dollars they have plowed into Generative AI investments. More than 80 per cent of companies have looked into or started using tools like ChatGPT and Copilot, but they only boost individual productivity, not firms\u2019 bottom line, the study found.<\/p>\n Investors appear to be growing antsy, with some beginning to rotate out of expensive tech and growth stocks and into small caps and value names. In the last two weeks, the Invesco QQQ exchange-traded fund tracking the tech-heavy Nasdaq 100 is down nearly one per cent, while the iShares Russell 2000 ETF is up over five per cent.<\/p>\n That could just be a bit of mean reversion in thin August trading, but it\u2019s a nervy backdrop for Nvidia\u2019s earnings release.<\/p>\n