ORLANDO, Florida, Aug 26 (Reuters) - 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.

Nvidia's ( NVDA ) quarterly results this week could therefore

potentially be explosive - not just for the company's shares or

the tech sector, but for all of Wall Street.

The U.S. chipmaker and global AI leader is the world's most

valuable company, with a market cap of $4.4 trillion. That's

double the entire value of Germany's benchmark DAX and

represents 8% of the S&P 500, the largest share for any single

stock in the index's history.

Nvidia ( NVDA ) is expected to report a 53% 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's own guidance three months ago.

Given Nvidia's ( NVDA ) unprecedented weight in the U.S. market, its

earnings releases have become an event - almost akin to U.S. GDP

or inflation statistics. But Wednesday's numbers will be

scrutinized particularly closely given the questions being

raised about whether we're seeing an AI bubble.

'OVEREXCITED'

Doubt appears to be creeping in among investors about when

and by how much - or even if - the eye-watering investment in AI

projects and infrastructure will begin to pay off. And it's not

just the bearish, contrarian, 'Magnificent Seven' short sellers

peddling this narrative either.

"Are we in a phase where investors as a whole are

overexcited about AI? My opinion is yes," said none other than

ChatGPT founder Sam Altman earlier this month, according to The

Verge.

A recent Massachusetts Institute of Technology study found

that 95% of companies are getting zero return on the billions of

dollars they have plowed into Generative AI investments. More

than 80% of companies have looked into or started using tools

like ChatGPT and Copilot, but they only boost individual

productivity, not firms' bottom line, the study found.

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 1%, while the iShares Russell 2000 ETF is up over 5%.

That could just be a bit of mean reversion in thin August

trading, but it's a nervy backdrop for Nvidia's ( NVDA ) earnings

release.

TRILLION DOLLAR BET

One of the key worries being bandied about is the amount of

money companies are investing in AI. The 'Magnificent Seven'

U.S. tech giants have pledged hundreds of billions of dollars in

the coming years on AI-related investment.

Morgan Stanley analysts predict nearly $3 trillion of global

spending on data centers through 2028, with over $900 billion

anticipated in 2028 alone. To put that into perspective, capex

spending among all S&P 500-listed companies last year was around

$950 billion.

Analysts at McKinsey go even further. They estimate that

investment in data centers worldwide will need to reach $6.7

trillion by 2030 - covering hardware, processors, memory,

storage, and energy - to keep up with demand.

With sums like that, the hurdles to making an attractive

return on investment are huge. But so are the potential rewards

if they do. Morgan Stanley strategists estimate that the

long-term 'economic value creation' for S&P 500 companies from

AI could reach $920 billion a year.

In theory, this could increase the S&P 500 market's value by

$13 trillion, using a 10-year average multiple of 18.5 times

future earnings, or up to $16 trillion, based on the current

market multiple of around 22.

HIGH EXPECTATIONS

But that's way down the line. It takes years for new

technologies to be fully adopted, and although markets are

forward-looking, investors can grow impatient if promised

returns fail to materialize. Especially when share prices have

run up in the meantime.

We may already be starting to see that in the recent tech

pullback. In the four months up to the mid-August high, U.S.

tech shares gained 53%, the strongest performance over a

comparable period since March 2000, Truist Investment Advisory's

co-CIO Keith Lerner recently noted.

"The rubber band for tech stretched too far - at least in

the short term. Tech became overcrowded and vulnerable to

negative headlines," Lerner says.

Given Nvidia's ( NVDA ) prominence, a release of bumper figures could

calm AI jitters, but its failure to meet analysts' lofty

expectations could cause the tech snap-back to become a whole

lot sharper.

(The opinions expressed here are those of the author, a

columnist for Reuters)