After last week’s sell-off of technology stocks over concerns about whether enormous artificial intelligence spending plans are justified, bubble-watchers won’t have to wait long for another big test of investor sentiment.

On February 25, Nvidia, the chip-making pioneer selling the shovels for the AI gold rush, will report quarterly earnings amid growing scrutiny of the industry boom.

Shares in the business rose 3.4 per cent on Monday on the very spending signals from some of its largest customers that prompted the recent dip in technology shares.

Last week’s flurry of earnings from Amazon, Alphabet, Meta and Microsoft showed AI capital expenditure by these giants alone is set to top $650 billion, prompting a sell-off that went beyond technology stocks and into other risk assets.

The fundamental anxiety is that the industry is racing to establish the expensive infrastructure needed to underpin the AI boom before it has come close to demonstrating the returns will be there to justify it. Outside of tech, business leaders are divided on the extent of the utility and productivity gains that will be delivered.

Investors are also cautious about the wisdom of technology titans that have thrived on a capital-light business model racing towards a capital-intensive one.

Cumulative AI spending has been forecast to exceed $5 trillion by 2030, 60 per cent of which is expected to go on semiconductors and other hardware, a frankly incredible level of investment in a new and commercially unproven technology.

Analyst Mike Zigmont at Visdom Investment Group, has said doubts over the sector’s “growth into infinity” are growing.

Yet even if the current spending boom ultimately proves unwise, Nvidia looks set to benefit from the largesse for some time yet, providing it with an enviable level of comfort about demand and revenue.

“The massive step-up in [capital expenditure] now expected in 2026 is likely to greatly benefit … providers like Nvidia,” Sebastien Naji, analyst at William Blair, said in a research note.

Goldman Sachs has issued an upbeat forecast for Nvidia’s quarterly earnings, predicting it will exceed revenue and earnings per share expectations.

Over the past four years the company has transformed from a significant technology player worth about $360 billion to the world’s largest company, with a market capitalisation of more than $4.6 trillion.

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This is on the back of an explosion in demand from the AI industry for its graphics processing units — formerly focused on the gaming industry — following the launch of OpenAI’s ChatGPT and other “large language model” products.

Nvidia is not immune from investors’ anxiety about the sustainability of the AI boom. Since its peak in late autumn last year, its share price has fallen by about 12 per cent, although it is in marginally positive territory for the year to date.

The Silicon Valley chipmaker is seeing growing competition from rivals including AMD and Broadcom. The launch of Nvidia’s latest chip, Vera Rubin, named for the American astronomer, and said to promise performance and energy efficiency improvements, needs to be well received to help maintain momentum.

There have been recent tensions between the company and OpenAI, one of its biggest customers, with doubts raised over a purported $100 billion “pledge” by Nvidia to invest in OpenAI amid reported concerns from Nvidia about OpenAI’s business model which, to put it gently, is extremely optimistic in its revenue projections.

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The mood between the two has since thawed but the tiff prompted a dip in Nvidia’s shares and brought to the surface worries about the wisdom of circular “vendor financing’’ deals between the industry’s key players.

Goldman Sachs says “upside” for estimates to Nvidia’s 2026 performance is “largely priced into the stock”, and share price growth will hinge on “revenue visibility” for 2027. Positive news on Chinese demand, which is limited by policy restrictions, could drive shares higher.

Those bullish about AI’s prospects will argue demand should remain strong for some time yet. Their argument is that AI is a generational technology that may even surpass the internet for the impact it has on business and societies. Rather than a speculative gold rush, the desire to invest, including by technology giants that can afford to keep funding enormous amounts of capital expenditure, is because they see the next industrial revolution has begun.

JP Morgan has said comparisons with the tech bubble of the late 1990s are wide of the mark, including because much of the funding is coming from well capitalised technology giants rather than external capital; signs of revenue momentum from tech giants selling AI-powered cloud, coding, advertising and enterprise products; and demand for data centres largely outstripping supply.

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Stephen Yiu, chief investment officer of the Blue Whale Growth Fund, which has profited from being an outsized backer of Nvidia since 2021, argues that unlike most of the AI sector, the chipmaker is a “jam today” play for investors. A close to 50 per cent free flow cash margin makes it roughly as profitable as Visa and Mastercard, he says, and it is making more cash this year than several of the world’s biggest technology companies combined. “Follow the money: avoid AI spenders and invest in AI beneficiaries,” is Yiu’s rationale.

JP Morgan has warned that some assumptions around return on AI investment, and the useful lives of AI assets, “remain open questions” and says “history reminds us that enthusiasm can run ahead of reality”. While turbulence, and perhaps a valuation correction, look likely, Nvidia will likely keep benefiting from its free-spending, deep-pocketed customers for a while yet.

Advice: Hold

Why: Strong performance “priced in” but no sign its tech giant customers will stop spending