(Bloomberg) -- The rally that’s added roughly $400 billion to Nvidia Corp.’s market value this year is about to be put to the test.

The chipmaker has been at the heart of this year’s stock market frenzy around artificial intelligence and quarterly earnings due after markets close on Wednesday will be scrutinized for evidence that spending on artificial intelligence computing is boosting sales.

“It’s going to be less about the actual results and more about what they put out there in terms of context for continued growth in the space,” said Mike Akins, founding partner of ETF Action, whose Amplify Thematic All-Stars ETF holds Nvidia.

After Nvidia shares doubled this year, boosting its market value to $759 billion, investors have a lot at stake. The company, whose semiconductors are used in computers powering AI applications, has emerged as one of the most popular ways to gain exposure amid an investor frenzy spawned by the success of OpenAI’s ChatGPT. The stock is the top performer in both the S&P 500 and Nasdaq 100 indexes this year, even as conditions in its core markets of personal computing and data centers remain tough.

Now comes the hard part: Providing evidence that AI-related demand is translating into enough revenue to justify the stock gains.

“Investors are going to demand to see some more in terms of specifics about the outlook for profitability at some point,” said Matthew Maley, chief market strategist at Miller Tabak + Co., LLC.

All eyes will be trained on results from Nvidia’s data center business, which is the dominant provider of AI accelerator chips. Cloud computing giants such as Microsoft Corp. and Amazon.com Inc. have reined in spending in general and analysts expect that some of the slowing is the result of a shift in budgets toward hardware specifically for AI.

Nvidia’s data center revenue in the first quarter is expected to be $3.9 billion, according to data compiled by Bloomberg, an increase of just 4% from the same period a year ago.

For Bank of America Corp. analyst Vivek Arya, stepped-up spending on components for AI computing might not show up until the current quarter, making the company’s guidance a key signpost for whether the AI surge is having a real impact. Nvidia’s revenue forecast for that quarter is likely to top the average estimate on Wall Street by about $200 million to $300 million thanks to AI-related demand, he said.

Such a boost would be welcome after estimates barely budged so far this year. Analyst projections for revenue in Nvidia’s current fiscal year have risen just 1.6% in the past six months, according to data compiled by Bloomberg. Net income estimates under generally accepted accounting principles have increased even less, at 0.4%.

The result is a stock priced at 61 times profits expected over the next 12 months, making it one of the most expensive in the Nasdaq 100, which has an average multiple of about 25 times, according to Bloomberg data. The rally, however, has paused in recent days, with the chipmaker’s stock falling for the fourth straight session on Wednesday. 

“As we learned from 2000-2003, companies that are going to change the world still have valuation limits,” said Miller Tabak’s Maley.

Tech Chart of the Day

Big tech stocks have outperformed to such an extent this year that the Nasdaq 100 Index, when measured as a ratio to an equal-weighted version of the gauge, is trading near its highest in more than a year. Supported by stellar gains in major stocks like Apple Inc., Microsoft, Alphabet Inc., Amazon.com, Nvidia, Tesla Inc. and Meta Platforms Inc., the index is up 25% in 2023 to date, while an equal-weight version has risen just 12%.

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--With assistance from Ryan Vlastelica.

(Updates stock move.)

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